DISABILITY INCOME INSURANCE
You have people that depend on you financially, college tuition to cover, and mortgage payments to make. So if you rely on your income, then you should know that disability income insurance can help you protect 45 percent to 65 percent of your income should you become too sick or hurt to work.
When you think of your assets, you probably think of tangible things like your home, car and retirement account. But, what about your ability to earn a living? At Alliance, we believe one of your biggest assets isn't anything you can touch or feel; it's your ability to work. If you're like a majority of Americans, it would be difficult, if not impossible, to continue meeting your monthly obligations if you were to become injured or ill and could no longer work.
Individuals buy disability insurance to protect against loss of earnings due to a job loss. There are two types of disability insurance, short-term and long-term. Short-term provides you with payments if you are out of work for an extended period due to illness or injury. Long-term disability is designed to pay out if you are permanently unable to return to work.
5 REASONS TO BUY DISABILITY INSURANCE
- Debt Obligations -If you have a mortgage, car payment or student debt obligation, what would happen if you lost your income source temporarily? The biggest concern for most people is a mortgage payment in this scenario. Disability insurance may be the only thing protecting you from delinquency, or even foreclosure, if you are unable to work due to illness or injury;
- Income Replacement -What would your family do if your income was no longer reliable? Head of household individuals are the most common purchasers of disability insurance for this reason. If you have more than one person relying on your salary, you have to think about a scenario where that salary was no longer applicable, and whether the members of your family could continue the same quality of life, in the case of your disability;
- Emergency Funds -For many people, short-term disability is not a large threat. They could provide for themselves and their families for three months or longer in the face of a loss of income. If this describes your situation, short-term disability may not be necessary, and it may just be an added expense. However, if you do not have an emergency fund, you should consider short-term disability a necessity instead of a luxury. You could face immediate financial crisis if you were unable to perform your work for an extended period of time;
- Risky Profession -All individuals face the risk of becoming disabled; accidents happen, even in the safest of places. However, those people in risky professions face a much higher incidence of disability than those in safer professions. If you work in a manufacturing job, you may become disabled or ill due to stress and strain on your body and not just accidents. Do you know people at your workplace who have had to take time off? If so, your employer may even sponsor a short and long-term disability program. You can have access to this program at a lower rate, and failing to capitalize on that option is ill-advised;
- Predisposed Conditions -You may know that your mother or father became disabled because of a stroke, arthritis or other condition that may have been genetically transferred to you. In this case, you have a greater risk of needing disability insurance. Your insurance may be slightly more costly as a result, but you should consider the alternative to carrying this insurance. If you know for sure that there is a relatively high chance you will become disabled and unable to work, buying insurance is the best method to secure your future regardless of what occurs with your health.
HOW DOES DISABILITY INSURANCE WORK?
Like any insurance policy, you will need to apply for coverage and make regular premium payments to keep your policy in force. Disability income insurance can be purchased as a stand-alone policy, or as an added endorsement on your life insurance policy.
In the event you were to become disabled, your policy would specify how long the "elimination period" would be before benefits begin. After that elimination period, if you were still disabled and unable to work, the policy would pay you the benefit amount specified in the policy, for the length of time specified in the policy.
Your monthly disability income insurance payments during periods of disability are designed to provide you with some supplemental income during the period you are unable to work. This can help you continue paying your mortgage and other bills.
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Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender. Surrender charges may reduce the policy's cash value in early years.
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It is possible that coverage will expire when either no premiums are paid following the initial premium, or subsequent premiums are insufficient to continue coverage.
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Guarantees are dependent upon the claims-paying ability of the issuing company.
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The use of trusts involves complex tax rules and regulations. Consider enlisting the counsel of an estate planning professional and qualified professional legal and tax advisors prior to implementing such sophisticated strategies.
