Your ability to earn a paycheck may be your most valuable asset. In a 2020 survey, two out of three people said it would take six months or less for their household to face a financial impact if the primary wage earner became disabled. Half said they would use their personal savings, and many would have to ask for help from their families, take our loans, or tap retirement accounts.1
Social Security offers some disability protection but qualifying is difficult — only one out of three applications is approved — and it typically takes three to five months for initial approval and longer for an appeal.2 The average monthly Social Security Disability Insurance payment of $1,278 would not meet the needs of most families.3
Portable Individual Coverage
If you’re concerned about the potential effect of losing your paycheck due to sickness or injury, you might consider an individual disability income insurance policy. Your employer may offer long-term disability coverage, but group plans typically don’t replace as large a percentage of income as an individual plan could, and benefits from employer-paid plans are taxable to the employee if the premiums were paid by the employer. Of course, if you change jobs, you might lose your subsidized employer-based coverage.
An individual disability income insurance policy could help replace a percentage of your income, up to the policy limits, if you’re unable to work due to illness or an injury. Benefits may be paid for a specified number of years or until you reach retirement age. If you pay the premiums yourself with after-tax dollars, benefits are usually free of income tax. An individual policy will stay in force regardless of your employment situation as long as you pay the premiums.
Customizing Coverage
Unlike group policies, an individual policy can generally be customized to meet your specific needs. Here are some common riders. All benefits are up to the policy limits.
Residual benefits. May help replace lost earnings after you return to work part-time or at a lower-paying job.
Own occupation. Determines a disability by your inability to perform the duties of your specific occupation or profession, as opposed to being unable to work in any occupation.
Automatic benefit enhancement. Provides an annual benefit increase each year for a predetermined period of years to help keep up with increased earnings. Your premium will also increase.
Future increase option. Allows you to increase benefits (for a higher premium) without medical underwriting.
Cost-of-living adjustment. Adjusts the amount of monthly disability benefits each year during disability.
Disability premiums are based on your age, gender, occupation, and the amount of potential lost income you are trying to protect, as well as the specifics of the policy and any additional benefits that are added. A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.
1) https://www.limra.com/siteassets/newsroom/industry-trends/2020-images/DIAM2020factsheet.pdf
2) https://www.disability-benefits-help.org/blog/top-5-reasons-why-social-security-disability-claims-are-denied
3) https://www.ssa.gov/disabilityfacts/facts.html
This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.