Florida Keys Business
Sunday, April 28, 2013
Some thoughts on disability insurance

It probably doesn't show up on your calendar, but May is Disability Insurance Awareness Month. And you might agree that such a month is useful, when you consider the following:

• Three in 10 workers entering the workforce today will become disabled before retiring, according to the Social Security Administration.

• At age 42, you are four times more likely to become seriously disabled than to die during your working years, according to National Underwriter Life Health.

• Disability causes nearly 50% of all mortgage foreclosures, according to Health Affairs, a health policy research journal.

Given these statistics, it's not surprising that the Life and Health Insurance Foundation for Education (LIFE) sponsors Disability Insurance Awareness Month to encourage Americans to address their disability income needs. Here's the bottom line: You can be really good at budgeting your money and you can be a disciplined long-term investor -- but unless you've protected at least a reasonable percentage of your income, your whole financial strategy is incomplete. And all your goals, such as a comfortable retirement, could be jeopardized.

Of course, you may not be totally unfamiliar with disability income insurance; if you work for a large employer, a group disability policy may be part of your employee benefits package. If so, you should certainly accept the coverage, which may be offered to you free, or at minimal cost. However, this coverage might be inadequate to replace the income needed to allow your family to maintain its lifestyle without dipping into your investments.

Consequently, you might need to think about purchasing an individual disability insurance policy. Here are some tips:

Look for a policy that is "non-cancellable" until you reach age 65. When you purchase a non-cancellable policy, your policy premiums can't be changed, provided you pay them on time.

Pick the right waiting period. Typically, disability insurance policies don't start paying benefits immediately; there's usually a waiting (or "elimination") period ranging from 30 days to two years. Obviously, a shorter waiting period is more desirable, but it's probably also going to be more expensive. You may be able to give yourself the flexibility of choosing the longer waiting period if you have created an emergency fund containing six to 12 months' worth of living expenses, kept in a liquid account that offers significant preservation of principal.

Avoid overly restrictive policies. You may want to avoid an "accident-only" policy or one with a limited benefit term (five and 10 years are common). These policies may be cheaper, but they don't cover either a disabling illness or the entirety of your working life.

Consider adding appropriate "riders." It will likely add to the cost of your policy, but a cost-of-living rider will help protect your future benefits from the effects of inflation. You also might want to add a future income options (FIO) rider, which provides you with the ability to purchase additional coverage in the future with no further medical underwriting.

These suggestions are general in nature. Your financial advisor can help you determine if you need a private disability insurance policy -- and, if so, what type of policy is best suited for your needs.

But don't wait too long to take action in this area. You can't predict the future, but you should still prepare for the unexpected.

This article was written by Edward Jones and submitted by Wil Pena, a financial adviser in Islamorada.

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