Disability Insurance Matters: Here’s Why

When considering whether you offset the risk of not being able to work, and thus earn a wage, you need to think about how long you could make it without a paycheck and if your savings are sufficient to cover your living expenses.

It is very common for financial advisors and Certified Financial Planning Professionals to recommend individuals and families accumulate six months of emergency savings as support if they find themselves without a paycheck. The bleak reality however, is that most people don’t have that much available in reserves, with about 75 percent of Americans living paycheck to paycheck, according to CNN Money.[i]

And it’s not just the poor who depend on each paycheck to get by. A paper by Brookings has identified a class of wage-earners whom researchers call the “wealthy hand-to-mouth,” people who earn a decent wage — and who might own a house and have a retirement account — but who spend all their money each pay period. About 30 to 40 percent of households fall into this category.[ii]

Even if you are one of the few with adequate savings it should be recognized that a disability has the potential to cost much more than the recommended 6 months of funds accumulated.

Insurance is a solution

Even though the threat of becoming disabled is real, there’s no need to start panicking. Solutions exist to support you when you can’t work. Disability insurance is the insurance that protects your most important asset — your paycheck. If you become too sick or injured to work Disability Insurance will begin paying some of your salary until you can go back to your job.

Life Insurance vs. Disability Insurance

The often more popular insurance – Life Insurance – protects your loved ones in the event you were to pass away and no longer be able to provide for them. This is important, but unhelpful in the event of a disability.

If you had to choose between life insurance and disability insurance, however, you’d probably fare better with disability. A little over one in four people who are 20 today will become disabled before they are 67, according to the Social Security Administration. Compared to the 1 to 2 percent of term life insurance policies that payout, according to various studies performed by the Insurance Industry, Disability Insurance appears to be a better investment.[iii]

Disability Insurance is often the overlooked middle child. However, the ability to replace your income in the event of disability is just, if not more, important than replacing an income at death.

What about Social Security Disability Insurance?

This brings up an important point. Social Security Disability Insurance might deny you or you may not qualify for SSDI if your earnings are above the threshold. For example, if you have a working spouse, SSDI might deny you if he or she makes $1070 or more per month, as of 2014. SSDI might also deny you if your illness or injury will keep you from work for fewer than 12 months. Finally, SSDI likely will not pay enough, even if you do qualify.[iv]

It’s Time to Start Seriously Thinking about Disability Insurance

If living without you or one of your family member’s income for a few months presents a substantial hardship, it makes sense to consider offsetting this risk with insurance. There are many different elements to a disability insurance policy that can be designed for you and your budget.

For example, you can choose between short-term and long-term disability insurance coverage. Short-term begins payments about a week after a disability occurs and covers you for up to six months. Long-term most often starts six months after disability and can continue up until age 65.

At the end of the day it is most important for you to focus on recovering from your illness without the worry and stress involved with paying for daily living expenses.

We are available to help you make a good decision when considering disability insurance. Send us a quick note to share that disability planning is important to you and we will be in touch to find a time to this review together.

Securities offered through 1st Global Capital Corp., Member FINRA and SIPC. Bruce Rawdin-Baron, Steven W. Pollock, Sean Storck and Nicole Albrecht are Registered Representatives of 1st Global Capital Corp. Investment advisory services, including RBFI portfolios offered through Rawdin-Baron Financial, Inc. IMS platform accounts offered through 1st Global Advisors, Inc. Rawdin-Baron Financial, Inc. and 1st Global Capital Corp. are unaffiliated entities. Rawdin-Baron Financial, Inc. is a Registered Investment Adviser. Placing business through 1st Global Insurance Services. Registration does not imply a certain level of skill or training. We currently have individuals licensed to offer securities in the states of Arizona, California, Illinois, Indiana, Kansas, Massachusetts, Michigan, New York, Oregon and Washington. This is not an offer to sell securities in any other state or jurisdiction. CA Department of Insurance License: Bruce Rawdin-Baron #0736631, Steven W. Pollock #OE98073, Sean Storck #0F25995 and Nicole Albrecht #0F99962.

[i]http://money.cnn.com/2013/06/24/pf/emergency-savings/ [ii] http://www.brookings.edu/~/media/projects/bpea/spring%202014/2014a_kaplan.pdf
[iii] http://www.ssa.gov/news/press/basicfact.html
[iv] http://www.nolo.com/legal-encyclopedia/social-security-disability-reasons-denial-32396.html