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Insurance is a financial instrument needed to protect property, health, and liabilities. We all pay a great deal for insurance each year to protect homes, cars, health, and life.
Wes Shannon
I have found, however, that a great number of people have not insured or have greatly underinsured their most valuable asset. Unless you live off of “mail-box” money (pension, royalties, or investments) your ability to work to earn money is your most valuable asset.
There is an insurance policy that protects this valuable earning capability. The policy is called a disability income policy. The word disability can have a host of negative connotations, and because of that people will shy away from purchasing it.
None of us ever plan on becoming disabled. Don’t let the word “disability” freak you out. The policy will pay if you get sick or hurt and cannot work. It’s that simple, most of us will at some time get sick or hurt and won’t be able to go to work for a time. Hopefully, we will recover after some time, but during that time the policy will pay you a monthly income.
When you think about it, there is nothing more important than the ability to earn a living. You can lose a car or a house and still recover if you can earn money, but if you cannot earn money you will most likely lose your car and or your house.
Many employers offer some form of disability insurance, but you must elect to participate. Workers compensation will cover you only if you are hurt while on the job. If you fall off a ladder at home or involved in a car accident while going to visit family, workers compensation will not cover you.
That is why disability income insurance is so important.
A good policy will cover you not only for accidents off the job but also for sickness. Just imagine having to take a year or two to fight cancer. During that time, you would collect from the policy and once you recover and go back to work the policy will stop. In a situation like fighting cancer or some other disease, not having to worry about your income can help increase your chances of recovery.
Most medical professionals will tell you that stress over finances can affect your body’s immune system.
To get this kind of insurance, I suggest starting with your benefits department at your place of employment. See if they offer any short-term or long-term disability income insurance on their group plan. This is generally the least expensive option and easiest to qualify for. Most of these group plans will pay 40% to 60% of your pay for either short-term (less than a year) or long-term (more than one year). These policies usually have a monthly or weekly cap of benefits. You need to find out what that is and if it is enough.
Another source of coverage can be from professional associations. Personally, I have purchased a good policy from the Financial Planners Association. They offer a good policy at group rates with easy qualifications. Contact any professional associations you may be a member of or ones you may apply to for membership.
A third option is to purchase an individual policy for yourself. Individual disability policies can provide the best coverage with it being designed to your individual needs. An individual policy can be used to supplement a group policy if the group coverage is not enough to protect you.
These policies require you to pass underwriting, like for a life insurance policy, and will cost more, but they are generally “non-cancelable,” meaning the insurance company cannot cancel your policy for any reason other than nonpayment. You get what you pay for with an individual policy. The higher premium provides better coverage and a better definition of “disability” than group or association plans.
Because disability insurance is important and complicated with all of the variables it is best to work with an insurance agent who has the Chartered Life Underwriters (CLU) designation. These are professional agents who understand the complexities of disability insurance. If you are working with a Certified Financial Planning Practitioner™ they should be able to refer you to a qualified insurance agent.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors.