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Why Disability Insurance is a Critical Tool in Your Post-Divorce Toolbox

Why Disability Insurance is a Critical Tool in Your Post-Divorce Toolbox

December 06, 2023

Why Disability Insurance is a Critical Tool in Your Post-Divorce Toolbox


We're coining December as Disability Insurance Awareness Month, and it's an opportune time to dive into the significance of disability insurance. This coverage isn't just a safety net; it's a crucial aspect of financial planning that ensures stability in the face of life's uncertainties. Statistically, 1 in 4 people are expected to experience a disability before retirement.[1] Especially for women suddenly finding themselves as the primary breadwinners of their household, I want to review what Disability Insurance is to ensure you know why it's vital to consider this kind of coverage.


What Is Disability Insurance?


Disability insurance is designed to replace a portion of your income if you cannot work due to a disability. The common misconception is that such insurance is only necessary for physically demanding jobs. However, disability is an all-encompassing term that covers a wide range of conditions, far beyond just physical injuries. A 'disability' is any medical condition that impairs your ability to perform your work, which can include physical injuries, whether job-related or not, but also:


  • Mental Health: Issues like depression or anxiety can be as incapacitating as physical ailments.
  • Unexpected Surgeries: Necessary medical procedures can leave you unable to work for extended periods.
  • Accidents: Not just workplace accidents but also those occurring in everyday life.
  • Diagnoses of Chronic Conditions: Conditions like heart disease, cancer, or multiple sclerosis can lead to disability that require ongoing treatments that prevent you from performing your job.


Given the varied nature of disabilities, the risk of experiencing a disability is more common than you would think.


The transition to a single-income household can be challenging. When you're living paycheck to paycheck and facing the responsibility of raising children alone, the prospect of losing your income due to a disability can be daunting. Disability insurance offers a solution to this vulnerability, ensuring that a significant portion of your income continues, even if you can’t work.


Evaluating Employer-Provided Disability Insurance


Many employers offer some form of disability insurance, typically covering around 60% of your income. However, it's important to understand that this income is taxable if your employer pays a portion of the insurance premium, which reduces your actual take-home amount.[2] In light of this, it's essential to ask yourself: Can you and your children live comfortably on less than half of your current income, especially with potential added medical expenses?


This is where personal disability insurance comes into play. Unlike employer-provided plans, private insurance allows flexibility and customization to suit your needs. This aspect is particularly beneficial for divorced women who may need to reevaluate their financial safety nets to better protect themselves and their children. Given the limitations of employer-provided coverage, personal disability insurance becomes an important consideration. It allows you to customize your coverage, ensuring it aligns with your unique needs and circumstances. This customization is vital for newly divorced women, who may need to reassess their financial safety nets post-divorce.


Why Disability Insurance is Critical for Self-Employed Professionals


Self-employed professionals, such as real estate agents, consultants, and freelancers, face unique challenges regarding disability insurance. Unlike traditional employees, they don't always have the safety net of employer-provided disability insurance. This absence makes having personal disability insurance even more important. As self-employed individuals, these women are solely responsible for generating their income. Disability insurance assures them that their income is protected, ensuring they can maintain their standard of living and meet their financial obligations, even in the face of health challenges.


Disability insurance is not just a precaution; it's a critical component of financial security, particularly for those undergoing significant life changes, such as a divorce.  It ensures that you and your children are protected, no matter what life throws your way.


As we observe Disability Insurance Awareness Month, let's spread knowledge and understanding about this vital coverage and its importance in safeguarding our futures. In the unpredictable nature of life, disability insurance stands as your safety net support, protecting our future from unexpected hardships.


I’d love to help you navigate this transitional time and see how we can best plan for your financial stability. Schedule a consult with me to learn more about how I can help.