Many families could not continue their lifestyle if one of their sources of income was suddenly taken away. In the event of a disability, you would not only lose income and interrupt savings plans for retirement, but you would need to support the disabled family member for an unknown period of time. Depending on your financial resources, disability insurance may be an important addition to your financial plan.
Many people believe the risk of becoming disabled is very small, but let’s look at some recent statistics from the Social Security Administration:
- One in every four 20-year-olds will become disabled before reaching retirement age.
- One in five Americans lives with disabilities
- One in ten Americans lives with severe disabilities.
- The average long term disability absence from work is 34.6 months – or just under 3 years.
There are two types of disability insurance: Short Term Disability, which pays a portion of your income if you cannot work for a few weeks or months, and Long Term Disability, which is designed to protect your income from a disability lasting months or years. These two types of insurance are designed to work congruently with one another.
Short Term Disability will activate almost immediately after a qualifying disability and is designed to protect your income as you recover from a short term injury or illness (often including time off for maternity). Long Term Disability will activate after an elimination period has been met (usually 3-6 months). Once active, long term disability will provide you with a percentage of your income, typically around 50-60 percent. The benefits will last until you can return to work or for the number of years stated in the policy. The ideal policy would provide income replacement until retirement, if necessary.
Most people have access to disability insurance though their employer, but you can also buy individual disability policies through major insurance carriers. Disability insurance products are varied and complex, so you may want to turn to an insurance professional for advice and counsel, depending on your particular needs. But don’t let the complexity stop you from carefully considering your family’s needs.
Horizon Advisors does not sell insurance or represent any insurance carriers but we do think that people should carefully consider the protection and peace of mind that disability insurance may provide. If you have any questions about how disability insurance fits into your financial plan please feel free to contact us.
Horizon Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.