Planning for Disability

Middle-aged Americans are five times more likely to suffer a disability that leaves them unable to work than they are to die. Many employees are covered for short-term disability – three to six months – but far fewer are insured against the long-term loss of earning power. Benefits are available through Social Security, but only if the worker has been disabled at least six months, is expected to be disabled for at least a year and is unable to do any kind of work.

Many financial planners strongly recommend disability insurance. It is designed to replace only a portion of lost income, generally no more than 70%, which starts after an elimination period. Look for an A+ rated company. You’ll want a policy that will last until you reach retirement age. The policy should pay benefits if you are unable to perform your own job, even though you might be able to do some other work. It’s also useful if the policy allows you to increase your coverage over the years, to replace a constant percentage of your current income. Remember that the younger you are when you purchase the policy, the lower the premiums. Your policy also should provide cost-of-living increases, so benefits will rise with inflation.

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