Long-term disability insurance is not something that many people think about on a regular basis, especially if they are in good health and in their prime earning years. However, accidents and illnesses can happen to anyone at any time, and being prepared with disability insurance can provide much-needed financial protection.
The U.S. Social Security Administration reports that more than 25 percent of 20-year-olds will experience a debilitating illness or injury before their retirement age. This statistic alone emphasizes the importance of considering disability insurance options.
Disability insurance replaces a percentage of your income if you become unable to work due to an injury or prolonged illness. Many organizations offer short- and long-term disability plans as part of their employee benefits package.
Some common causes of long-term disability include musculoskeletal disorders, cancer, injuries, mental health issues, and circulatory problems. These can have a significant impact on a person’s ability to work and earn an income.
When considering disability insurance policies, it is important to understand the distinction between “own occupation” and “any occupation” coverage. Any occupation coverage only provides benefits if the insured person is unable to work in any job suitable for their education, experience, and age. Own occupation coverage, on the other hand, provides benefits if the person is unable to perform the duties of their specific occupation at the time of the claim.
For high-income earners, group disability insurance policies may have limitations that could negatively impact their financial well-being. These policies often have a maximum coverage amount, which may not include commission or bonuses. Additionally, there is usually a monthly cap on payments, meaning that higher-income earners may receive a significantly lower percentage of their salary as income replacement.
Having sufficient disability insurance coverage can serve as asset protection, allowing individuals to maintain their standard of living without having to dip into savings or borrow from retirement accounts. It is crucial for high-income earners to carefully consider their disability insurance options and potentially supplement their employer-provided policy with additional coverage.
When looking for disability insurance, it is important to understand the specifics of your workplace policy. Important considerations include the type of coverage, the percentage of income replaced, caps on benefits, the length of the benefit period, portability, and taxes on benefits.
In addition to employer-provided policies, high-income earners may also consider adding supplemental coverage through group plans, purchasing their own policy, or exploring executive disability carve-out options. Self-employed individuals and business owners can also find disability insurance options tailored to their specific needs.
While thinking about disability insurance may not be pleasant, understanding how an unexpected injury or illness could impact your income and overall financial well-being is crucial. With the right disability insurance coverage, you can have peace of mind knowing that you are financially protected should the unexpected happen.