Financial Literacy Series--Disability Insurance
Kelley Hughes • April 21, 2023

Income is the foundation of the life you have today, and the future you plan for yourself and for your children.

Ask yourself: What would happen if your income stopped because of an illness or an injury? How would you cover your expenses? A partner's income, borrowing from family, maxing out credit cards, and withdrawing retirement savings are short-term fixes. But what if the situation lasted months...or longer?

If you've read my previous posts in this blog series, then you're familiar with my preference to use insurance products to fill the gaps between the funds available and the funds needed to manage a risk. I love having a contractual guarantee that funds will be provided if and when a need arises and there are no savings available to meet that need.

Disability Insurance

Individual disability insurance pays you a monthly benefit if you become too sick or injured to work and can help preserve the lifestyle you have today. I recommend my clients obtain this type of insurance and also ask their ex to obtain this insurance for several reasons:

  1. Most group disability insurance plans only pay 50% or 60% of gross income.
  2. If the disability insurance cost is paid by the employer, then taxes are withheld from the already significantly reduced payment.
  3. Certain disability insurance policies pay for a limited amount of time, even if the disability continues.
  4. Certain disability insurance policies discontinue payments when employment resumes after a disability, even if employment is at a lower income level.

Owning an individual disability policy protects you from a massive reduction in income in the event of a disability. The policy will guarantee income at a certain amount for a specific time period (sometimes up to retirement age), and it's possible to find policies that will continue payments even if you go back to work at a reduced schedule or at a lower income rate. If your ex pays spousal support or child support, then an individual disability policy protects you from a massive reduction in support payments in the event of his or her disability. I'd be glad to help you assess your needs for individual disability insurance. Schedule a consult with me here.

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