By Joel Zimmerman

Why Invest in Disability Insurance if You Already Have Life Insurance?

While shopping for insurance coverage, most investors start with life insurance. This makes sense, since it can be a powerful tool to protect your loved ones in case of your death. After that, you insure your home, care, TV and other assets against the risk of loss. However, what about the most important asset of all, i.e. your ability to earn?

Life insurance can take care of your family’s financial needs, like bills, loans, mortgages and daily expenses, if you were to die. What if you didn’t face death, but the inability to work and provide for their needs? Life insurance certainly wouldn’t be of much help then, since you wouldn’t receive death benefits and would be left with no way to pay the bills!

This is where you need the risk protection offered by disability insurance, which we’ll look at in some detail below.

  • What is Disability Insurance?

This is a type of insurance coverage that helps protect your income, savings and assets in case you are injured, sick or otherwise disabled for an extended period. Basically it pays a portion of your income if you are unable to work and earn a living on your own.

  • Why Disability Insurance is Necessary?

Statistics say that almost a quarter of those aged 20 today will suffer a disability at some point in their lives. Despite that, only about half of all families have sufficient liquid savings or assets to replace an earning member’s monthly income for more than a month.

  • How Disability Insurance Can Help

Since disability coverage replaces part of your income, it provides a ready source of funds for your financial needs. You can avoid dipping into your savings and education or retirement funds if you have a backup for your paycheck.

  • Types of Disability Insurance

There are mainly 2 types of disability coverage available today, whether you choose to invest in employer-provided or personal plans:

Short-Term Disability Insurance – These plans replace around 60-70% of your base salary with a monthly cap, for a specific period of time (typically less than six months, but sometimes up to a year). There’s normally a 2-week waiting period before payouts begin.

Long-Term Disability Insurance – These plans replace around 40-60% of your base salary with a monthly cap. Most plans have a 90-day waiting period, so the benefits begin after short-term coverage stops and continue as long as you are disabled. They may end after a specific period or when you retire, depending on the plan.

  • What Does Disability Insurance Cover?

This really depends on the plan you have chosen, for instance:

Certain policies provide coverage for income loss if you can’t perform your current job, while others only pay if you’re unable to work at all (in jobs for which you’re qualified).

Some policies will replace part of your income if you’re partially disabled and can work part-time, and others will pay only if you are completely disabled and cannot earn at all.

In some cases, your disability insurance policy may even pay for training and other services that will help you gain employment after you are disabled.

Disability insurance is not meant to act as a replacement for life insurance, but rather as a backup in times of need.
At LifeCentra, we can help you understand how to use insurance as a means to secure against financial risk, protecting your income and savings no matter what. To learn more, get in touch with us today!

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