Can You Sustain Your Income If You Get Injured and Can’t Work?
Life can be unpredictable. We learned that living through 2020, and we many of us are still reeling from its effects.
If you or a family member in your home suddenly found yourself out of work due to mandatory quarantine — or incapacitation from COVID-19 — you could benefit from Economic Impact Payments, or unemployment supplement pay to help you replace your lost income.
But did you know there is an alternative option?
Disability insurance is your financial security in the event that you or a loved one become injured and unable to work.
Similar to life insurance, disability insurance (or income protection insurance) provides emergency funds. Disability insurance can cover around 70% of your gross income, and it’s can be tax-free, depending on who pays for it.
The key difference between life insurance and disability insurance is that no one has to pass away to receive benefits; it’s paid out during your lifetime.
Even if you’re healthy and thriving right now, you can’t predict the future — but you can prepare for it.
In this blog article, we’ll break down how to shop for disability insurance, and how to use it if you ever need it.
How To Get and Use Disability Insurance
● Determine if you need it - does your employer offer this?
● Find where you can apply by speaking to a Financial Planner
● Learn what plans and coverage you may need based on your individual circumstances
Where Do You Get Disability Insurance?
Maybe you’re thinking you don’t need disability insurance, and that’s understandable. Yet ask yourself these questions before coming to a decision:
● “Can I survive for at least a year with my current savings?”
● “Can I retire right now if I chose to?”
● “Am I of age to receive my full Social Security benefits?”
● “Do any of my loved ones need my help? Can I provide for them and myself right now with my current funds?”
If the answer to any of those questions is no, then let’s look into where you can find disability insurance to cover you and your family when you may need it most.
● Employer-sponsored plan some employers do offer this benefit, and others offer it as an opt-in, meaning you would have to choose it at benefit selection time
● Insurance companies these can be local or national and often best to review a range of different policy premiums and benefits from different providers
● Individual plan with the help of a Financial Planner to get you the best financial representation, and they can often advocate for what you actually NEED versus what someone is wanting to ‘sell’ you.
These plans can cost between 1% and 4% of your annual income, depending how they are sourced and who decides to pay for them (employer/employee etc)
Keep in mind that, if you are older in age, or a woman, you may pay more for your disability insurance, especially the longer you delay taking the policy.
This is because the monthly premiums go up and offset the benefits if you are over 60-years-old. For women, insurance companies consider that women’s life expectancy is usually longer than men, as well as health conditions such as pregnancy.
What Type of Disability Insurance Plan Should You Get?
There are two types of income protection insurance you can choose from.
● Short-term: This form of insurance will cover you anywhere from two months and up to two years before the benefit year expires.
○ This is a good plan for people who:
○ Are wanting to become pregnant
○ Are injured but will fully recover in less than a year
○ Need mental health services like therapy.
● Long-term: This type of insurance covers you for a year and through retirement, if need be.
○ This is a good plan for people who:
○ Are permanently disabled
○ Are low income earners who need extra financial protection
○ Have chronic medical conditions and use prescriptions
When Does Your Disability Insurance Pay?
Disability insurance policies require you to complete an elimination period before your benefits kick in.
Unlike deductibles, you don’t pay anything. You “pay” by waiting.
The usual elimination period ranges from 90 to 180 days. If you choose a longer elimination period, your premiums will be lower.
It works the same in the reverse effect: the shorter the elimination period, the higher your premiums will be.
Once you start receiving your benefits, use the funds as you see it best. Most plans cover basic necessities, like your rent or mortgage, utilities and auto insurance.
What you and your family need takes priority — choose a plan that pays you what you need to be comfortable.
Need Help Getting Disability Insurance?
Finding the right disability insurance plan can be tricky if your employer doesn’t offer it, or if you’re an entrepreneur and want to create your own plan.
Fyvie Financial is your complete resource to help you get disability insurance that protects your wealth and provides you with financial security. We work alongside some great brokers and brokerage companies after making our recommendations that are appropriate to your needs, should you want some direction on actioning these types of insurance plan.
Book your complimentary discovery call today to get in touch with one of our Financial Planners to guide you in expert financial preparation.