Protecting Your Income from Death and Disability

Protecting Your Income from Death and Disability - picture of pink piggy bank surrounded by packing foam pieces

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Like most couples, Greg and I didn’t have a lot of money to work with when we first got married. As time moved along, we started to make more and more money – which meant that we also accrued more and more assets. After we bought our first house, one of the first things we decided to do was to buy some life insurance. We each purchased what we felt was a fairly sizeable amount that would not only cover any funeral expenses, but would also pay off the house should anything ever happen to either one of us.

After having kids, we thought about getting more life insurance on both of us. However, we have not made that jump just yet. Still, working at a funeral home for the last six years makes you realize the importance of having life insurance. It seems like we saw several families a week who were without the benefits of it, causing them not only the grief over their loss but undue stress due to financial concerns.

When we are thinking about protecting our families, one of the first things that comes to mind is to protect their futures against our death. I believe life insurance is one of the most important insurance products that you can own. However, there is another type of insurance that most people often overlook – disability income insurance, sometimes referred to as income protection insurance.

Disability Can Happen

Of course, losing the life of one of the household breadwinners is certainly one of the most devastating financial disasters that can occur to a family and most people insure against it. Yet, life insurance will only pay out upon the death of an insured. What happens if you get too sick or injured to work? Becoming disabled can have a similar effect on your finances, yet many people fail to insure against this possibility.

Did you know that the chances of becoming disabled and losing one’s income potential are much greater than losing that income due to death? According to the Social Security Administration, about one in eight twenty year-olds will die before they reach their full retirement benefits at age 67.  However, just over one out of every four 20 year-olds will become disabled at some point during their career before retirement age. Although we don’t hear that number very often, it is a number that should make us aware of the dangers of disability.

Obviously, life insurance can help to pay some of the bills if a person dies within a relatively short period of time from their disabling illness or injury. However, many people are unable to work for years on end. Disability income insurance can provide income protection for these situations. Typically, disability income insurance will pay a percentage of the disabled person’s salary as it was before they got injured. Often times, that percentage may be as high as 75%.

Elimination Periods

I would like to give you one note of caution here. Be aware that this insurance may be subject to a “time deductible” called an elimination period. This functions in the same way that a deductible does in other insurance, except that it is a time requirement before the benefits begin. Many times this period may last as long as 6 months. Even Social Security disability benefits are subject to an elimination period of five months, which is a good reminder to make sure that you have your emergency fund ready to go.

So, if you are looking to protect your family from the loss of your income, make sure to get a good life insurance policy to help replace your income if you die. But, don’t forget about protecting your income from the possibility of disability. Your family and your wealth may depend on it!



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  1. Good points! I view life insurance as replacement income. As an older person, I have very little debt, but loss of income is more important.

  2. Not only are you more likely to become disabled than die early, your expenses may increase as well when unable to work.

    Once somebody passes away the medical bills stop accumulating. When someone becomes disabled there may be ongoing medical bills that pile up over time. People with “consumer directed health plans” feel the pinch the most – as the plans leave a big chunk of the medical expenses up to the individual.

    People often lose their jobs when disabled. If the disabled person is the one carrying the family health coverage the premium costs may also rise sharply. People are often shocked to learn of the cost of COBRA coverage. They can continue on the group plan for 18 months, but lose the employer contribution, and the ability to pay the remaining premium using pre-tax payroll contributions.

  3. Where can self-employed people buy disability insurance? I shopped for it in 2008 when I first went out on my own but didn’t buy it then. Who are the vendors to look at?

    1. You should probably check with an independent agent if your employer doesn’t offer a plan!

  4. Hmmm. To be honest we don’t have either life or disability insurance except for what we get via our employers (and I have no idea what or how much that is). Since both my wife and I work, and we have no kids at the moment, we’ve honestly never gave it much thought. Plus with our mortgage scheduled to be paid off in May 2014, we don’t see much need. Careless or frugal? Not sure… but I’m leaning towards frugal, what do you think?

    (Probably will at least find out what I get via work for disability coverage)

  5. My Wealth Desire says:

    That great Holly having insurance with funeral expenses benefits. I remember when my father passed, he has no funeral benefits from social security or any insurance company, its really a big pressure to us financially.

    Life insurance is very important to have a peace of mind. You are ensure that something your family will get if accident will happen to you.

  6. My wifey and I just got life insurance a few years back. Up until then we really never thought about if something happened either on of us. Now being married and having kids it puts in to perspective how important it is and could be if something happened to one or both of us.

  7. I definitely need to check out life insurance and I actually recently called our insurance agent to see what options they had. I hopefully will get this finalized within a month or two – it’s a high priority for us right now.

  8. Just added more life insurance last month. Actually we switched policies altogether to something a bit cheaper. When it comes to life insurance buying sooner rather than later is the best way to go.

  9. Thanks for this post, Holly. I agree that the chances of becoming disabled and losing your income seem more likely than death, for most people. We have a disability policy through work that pays a percentage of my income, but it’s not taxed so the difference wouldn’t be that great. I have a term life policy as well, but we’re considering lowering the amount every couple years as we approach financial independence. Maybe that’s foolish(?) but our thought is that as we gain more in assets, our need for life insurance diminishes.

  10. Former Northwestern Mutual agent here and I was amazed at how many people simply didn’t want to talk about disability or who thought they had adequate coverage through their employer. I like working with older clients because they understood their own mortality and had often see unfortunate things happen to colleagues and friends. (They also had more money and more assets to protect.)

  11. I have life insurance through my employer, and my partner is covered too. We can claim up to $200,000. If either of us died and put that on the mortgage, we’d definitely be able to float ourselves.

  12. Good post. It is very important to secure our financial future and that of our loved ones. I have life insurance but I do not have disability and this post makes me think twice about it. Like one gentleman said above, it is possibly easier to be disabled than die early.

  13. I haven’t had any life insurance yet. I know this is a mistake and I am looking up for some good ones in the coming days now that I have settled my finances.

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