As financial planners, we always discuss ways to prepare for the future, like retirement plans, buying a home, and even having health insurance.
But there’s another crucial component in your financial plan for something that could be more immediate. Income protection is one of those essential pieces.
Ask yourself this question: “If I couldn’t work for six months or a year, what effect would that have on my household?”
If you work full-time and have people who rely on you, it’s probably time to consider disability insurance. Here’s our essential guide.
What is disability insurance?
Disability insurance covers your income if you have an accident, injury, or illness that prevents you from doing your job, or sometimes, any job.
But this doesn’t mean this type of coverage will reimburse your whole income. Typically, it will cover no more than 75% of your regular income.
But if you can’t work and your bills are piling up, disability insurance allows you to pay your living expenses and focus on your health and recovery.
What types of disability policies are there?
There are multiple ways to build policies that fit your needs. But in general, there are two main umbrellas: long-term and short-term.
Short-term disability insurance typically covers your income for up to six months. This insurance type is what most employers purchase for their employee benefits. Long-term disability insurance normally lasts for up to a year.
But in every policy, there will be a “triggering disability,” which will initiate your benefits. The beneficiary will also need a doctor to sign a monthly voucher saying that your disability still prevents you from working.
Ask yourself this question: “If I couldn’t work for six months or a year, what effect would that have on my household?”
Who needs it?
If you are making income independently or have people who rely on your income, it’s time to start thinking about disability insurance. This is also essential for people who are self-employed, which is becoming increasingly common in today’s economy.
This type of insurance works alongside financial planning. More importantly, disability insurance is a simple investment that protects you and your family in the worst-case scenario.
Want to learn more? Listen to our episode of Dream, Plan, Live for an in-depth guide about how disability insurance works for you and your life.