Do I Need Disability Insurance?

By Marv Law, CLTC

Disability insurance helps replace income in the event a sickness or injury prevents you from working and earning an income.  Here are five questions to help determine if this is needed.

  1.  Do I have an income to protect?  Small or large, income of most any size can be protected.  A common mistake is to think that a small income does not need to be protected, or that it cannot be protected.  There are many affordable options available to protect both large and small incomes. Anyone with a paycheck should consider protecting it.
  1.  Does anyone else rely on your income?  Protecting your paycheck is not only for you, but it’s also for those you love, and this can include a parent who may rely on your income.  If there are two incomes in your household, a common mistake is to think that the shortfall can be made up.
  1. Is the outcome detrimental if your income stops?  What happens to your ability to meet your financial obligations if your income stops?  Will this affect your ability to maintain your current home and living arrangements? What about automobile and transportation?  Education?  Retirement portfolio?
  1. Do you pay into state or social security disability?  A frequent misconception is that if you pay into state or social security disability, that your income is protected.  The reality is that state disability is temporary, and although social security disability lasts longer, in both cases only a small portion of your income is protected.  And if you are self-employed you may not be eligible for state disability at all.
  1. Do you have assets you want to protect? Accumulating assets is typically done to provide income for your retirement years.  In the event of an unexpected sickness or injury contributions made into a retirement plan will likely cease.  Such an event can devastate a well planned retirement strategy, leaving little or no income above Social Security during the later years of life.  With a well designed plan, you can not only avoid depleting your nest egg, but you can also continue to contribute to it and so that it continues to grow as originally planned.

If you are beyond your working years, or if you have accumulated an investment portfolio with an adequate income stream to meet your present and future financial goals and dreams, you do not need disability insurance.

However, if you answered yes to any of these five questions, then you most likely should consider disability insurance as part of a comprehensive financial plan.  A qualified health and income specialist can assist you and work with your financial advisor to avoid the emotional and financial devastation due to an unexpected disability.