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Disability can threaten everything you have worked for. Illness or accidents can happen to anyone. If it happened to you, you could lose your greatest assets, the ability to work and earn an income.

Too often people assume they can relay on Social Security or disability insurance benefits from their employer to replace income. Income from these sources is often unavailable or just not enough. Any money saved could quickly disappear.

Living Expenses?
If you could not work, how would you pay your expenses. Even if your income stops, the bills keep coming in. Housing, utilities, food, clothing, education, and auto expenses are just a sample of the continuing financial obligations.

College Funding?
Is college in your children’s future? It may not be if your income stops unexpectedly.

Retirement Funding?
A sudden illness could keep you from adding to your nest egg. In fact, you may need to break into it to meet everyday living expenses.

What happens to your dreams?
College, retirement, a vacation home are things you have worked for, don’t take a chance, protect your income today.

Whether you need full coverage or need to supplement existing coverage, a disability income policy can meet your specific needs.

How do you assess your needs?
How much disability insurance you need depends upon your current income requirements. Disability policies often limit coverage to a percentage of earnings or to a maximum dollar amount. Would this limited amount be enough for you and your family to live on? Would you have alternative means of support?

Disability benefits are sometimes subject to income tax. You need to determine if your benefits are subject to tax and, if so, how much would be left after taxes are paid.

If the insurance was purchased on your behalf by your employer, the benefits will generally be taxable when you receive them. If you pay for the coverage, benefits are generally tax free.

To start your analysis, estimate your "short-term and "long-term" income requirements.

Short-Term - Short-term needs are often addressed in two ways. An employer sick pay plan pays employees for sick days which are usually earned annually. Additionally, an employer may have an accident or sickness plan that pays partial or full salary, after some waiting period, for a defined period of time (for example, up to two years).

Long-Term Disability - a disability that exceeds a specified period of time. The actual number of days or months considered "long-term" will vary by insurer. Compare these needs with the benefits you are entitled to, if any, from federal programs (such as Social Security), state programs (such as worker's compensation), and any group coverage (such as that provided by your employer).

If these benefits do not fully meet your needs, investments or other assets close the gap? If not, you may need to consider an individual disability policy. If you do decide to purchase an individual disability policy, you should look closely at the:

Perils Covered. A policy may provide benefits resulting either from accidental bodily injury alone (accident only coverage) or from accidental bodily injury or sickness (accident and sickness coverage).

What does this mean to you?
The broader coverage is usually well worth any increased cost in premium.

Maximum Benefit Period. You may choose a benefit period ranging from as short as six months to as long as your lifetime (sickness coverage is often limited to age 65). You should select a benefit period based upon your needs.

What does this mean to you?
If you need permanent protection, you should consider buying coverage with longer benefit periods (for example, to age 65) for both accidents and sickness.

Definition of Disability. Understanding the definition of disability in a particular policy is critical. The definition could refer to an inability to perform the duties of any occupation, or of your occupation, or of your specific job. In addition, the definition may require either partial or total disability.

What does this mean to you?
Look at the definition of disability. Does disability mean inability to do your regular job for a certain period of time? Or inability to perform any job or one that you are "reasonably" suited by education, training or experience? Or is it a combination of both definitions?

The best policies define disability as the inability to do your regular job for a certain period of time. Under these policies, you know you're covered when a disability puts you out of your job. This type of policy costs more; but the increased peace of mind you gain is generally well worth the increased premium.

Waiting Period. The waiting period is the number of days after a covered disability occurs before benefits begin. The period can range from no days for accidents and seven days for sickness to as much as one or two years for accidents and sickness. When selecting a disability policy, you should coordinate the waiting period with any other coverage you have.

What does this mean to you?
A small increase in the waiting period can produce a considerable savings in premium. If you have other resources available to cover short-term needs, you can allocate more premium dollars to build a more adequate long-term protection program.

What products are available?
A disability policy is either short term (up to two years) or long-term (up to age 65 or for life). Many policies are classified by whether they can be renewed.

These are some more key concepts of information:

• Non-Cancelable. Cannot be canceled (except for nonpayment). Usually, this kind of insurance can be renewed at your option without a rate increase.
• Guaranteed Renewable. Can be renewed at your option, but the premiums may increase.
• Guaranteed Insurability. Means that additional coverage may be purchased even if your health deteriorates.

Did you know?
The cost of disability insurance is higher for women because historically women have lived longer and have filed more disability claims.

Tips: It is generally advisable to purchase a policy that cannot be canceled. This feature gives you the assurance that the risk of disability will be covered throughout the term of the policy.

You also want to level premiums throughout the life of the policy. That way, you can budget and plan for the cost of covering this risk.

Premium and policy considerations
Premium rates depend on your age, health and occupation, all of which are significant factors in determining your disability risk. Older people are at a higher risk of disability, as are people involved in hazardous work. Your premium will also depend on the amount of income you are trying to replace. The higher the dollar amount of your coverage, the higher your premium.

Did you know?
If you earn $40,000 after taxes and can work for 20 more years, your job is an $800,000 income stream!

Here are some sample premiums for individual disability income insurance policies:

Annual Premium With
Waiting Period

There are many other provisions you should consider in purchasing or analyzing disability insurance, including:

Coordination of Benefits (COB). Means that the amount of the payments you might be entitled to receive from the insurance company will depend, in part, on one or more other benefits you may receive as a result of your disability. Typically, a certain target benefit is established and the policy makes up some or all of the shortfall.

Return of Premium. Is a provision that requires that part of your premium be refunded if no claims are made for a stated time as defined in the policy.

Additional Purchase Options. Gives the younger insured who cannot afford premiums for larger policies the option of purchasing additional insurance at a later time.

Cost of Living Adjustment. Provides an increase in coverage equal to the increase in the cost of living as measured by the consumer price index. This may increase your premium by 20%-25%, but the increase in benefits makes this provision worth considering.

Residual Benefit Riders. Pay some benefits if you return to work part-time while still disabled. These riders are also called partial, proportional, gradual recovery or presumptive disability.

In single parent households or if one spouse works in the home, planning for disability can be particularly important and difficult. The spouse working in the home may not have any income stream on which to base a disability benefit; therefore, insurance may not be available. In addition, additional expenses related to child care may need to be considered in computing the needed amount of disability benefit.