As my #FinancialFitness2018 journey continues, I have been giving consideration to one of the most important aspects of my financial life; my income. As a single mom with two daughters, it is obviously critical to our financial well-being. What if something happened and I couldn’t work for a year or two years? What if I became ill or suffered an injury that prevented me from working for the rest of my life?
The answer is Disability Insurance. But it turns out that Disability Insurance, or DI, is actually quite complicated. There are many different variables to consider, and it’s taken me a couple of weeks to get through out of the options to decide which policy would be the most appropriate for me.
The first consideration is between Short-Term DI or Long-Term DI. Short-Term DI will only last a year or two, while Long-Term DI can last several years or even until age 65. The uses for both are quite different, and after comparing the quotes that I received it made more sense for me to pursue Long-Term DI. The greater risk to me and my family would be if I were disabled for a long time, and while it would be best to be able to protect myself against both risks, insurance often requires evaluating your priorities. I couldn’t afford to do both. Additionally, the Short-Term DI was almost as expensive as the Long-Term, while only protecting for a year or two. It would be easier for me to self-insure for that length of time, or save the money I would need if I were to become sick and couldn’t work for 6 months than to pay the premium for that policy.
Once I decided to focus on Long-Term, I had to decide how long I wanted to be insured for. Again, it was a matter of what I could afford. While I would have preferred to have a policy that protected me until age 65, it was considerably cheaper to purchase a five-year policy. The elimination period for the Long-Term DI policy that I chose is 90 days. In a couple of years as I continue to progress in my career, I could purchase another policy or replace the one that I am buying now with a policy with a longer term if I felt that was appropriate at the time.
For those of you that are not self-employed, you have another option available to you, and that is a Group Policy. One of the benefits that is often offered by employers is Group Long-Term Disability Insurance. You can also find this within different membership clubs or professional organizations. I would encourage you to take a look at this as it is a great option. It is much less expensive than buying an Individual policy, but there are some key differences to consider. One is that the amount that you can buy in a Group policy is limited, so you might not be able to buy as much protection as you need. Another difference is that the distributions of an Individual policy are income tax-free, while a Group policy might be entirely taxable, or with only portions of it tax-free. For those that are able to participate in a Group policy, you can supplement that policy with an Individual policy if you need additional coverage.
While this is a lot to take in, there are even more details to consider when deciding what type of Disability Insurance policy to purchase! It would be a lot to break down every option and variable here, so I’m going to stop there. For our clients that are in their 20’s, 30’s and 40’s, Disability Insurance is a critical consideration, so reach out to us and we’ll go over everything that you need to know for your own personal situation.