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Disability
Insurance... Page 2
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Because no one knows exactly what the future will hold it's hard to decide whether you
need additional disability insurance and, if so, how much is appropriate. The best you can
do is to think of some things that could happen and think about how you'd react to them.
A good place to start is to consider a "worst-case" scenario. Take a look at
your finances and estimate what would happen if an adult had a stroke and it was necessary
to move them into a nursing home. Include both income and expenses. Estimates are fine.
You don't need to be overly accurate. The goal here is to just get a feel for how tough it
would cost and how much income would be needed to keep things going. Prepare a basic
budget with the revised income and expense figures.
You'll probably want to also do a scenario that's not quite so drastic, perhaps where
someone is disabled for a year or two. Under this circumstance you'd expect that the
disability income required would be significantly less.
Even using rough estimates, this exercise will take a couple of hours. But, I've yet to
see a chart that can account for all the different factors that make your situation
unique. Everything from dependent children to where you live will affect your needs.
After you have some idea of how much coverage you're looking for it's time to consider
what a policy will cost. Rates will vary widely. A number of factors will affect the
rates. Obviously, your age will have a difference. The premium will increase if you need
to begin receiving checks shortly after the disability occurs. Do you expect payments for
a certain period of time? Say five years? Or until you reach age 65?
Another major determinant of your premium is the definition of 'disabled'. Are you
disabled when you can't work at your specific profession? Or do you have to be unable to
work any job to qualify. For instance, if a surgeon loses use of his hands, he's lost a
significant income. But under some policies, if he's able to work as a janitor, he's not
considered disabled. For some people taking a step down in income is no big deal. For
others it's a disaster.
We took a look at rates quoted through The Hartford Life Insurance Co. so you'd have some
idea of what coverage costs. The plan we reviewed would replace $4,000 in monthly income
and has a 90-day waiting period before you receive any money. For a worker under age 30,
the annual premium would be $224. For someone between age 40 and 49, it runs $492 per
year. The coverage is for someone who's totally disabled. It covers your specific
occupation for the first two years and then any occupation thereafter.
There's a good chance that you won't take the time to go through this exercise. And
there's also a six in seven chance that you won't need to. But if you happen to be that
seventh person, you face severe financial hardship if you're not prepared.
Next: Health Insurance
Gary Foreman edits The Dollar Stretcher website. You'll find the web's
largest collection of free money saving articles. There's even a free weekly email
newsletter. Visit Today!
Insurance
Calculators:
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• How much life insurance do
I need?
• Which is better: term or
whole life?
• What is my return on a
whole life policy?
• What is my return on a
universal policy? |
