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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%.
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!