Your ability to make a living is your most valuable asset. Without being able to earn a paycheck, most people will quickly run out of funds and be destitute, particularly considering their financial obligations like a mortgage and expenses for their kids.

Whatever your career, having a source of income if you suffer a debilitating work event – or an illness or injury that is non-work related but keeps you from earning – can be the difference between staying in your home or losing it altogether.

Why you need disability insurance

Disability insurance pays a portion of your income in exactly those types of scenarios.

While you may not think that you will at any time be missing months or years of work because of an injury or illness, especially if you’re young and healthy, things can change in a heartbeat. Consider that 25% of 20-year-olds today will experience disability for 90 days or more before they reach 67, according to the Social Security Administration.

Types of disability coverage

There are two main types of disability insurance – short-term and long-term coverage. If you are disabled, both policies will replace a portion of your monthly salary. In addition, some long-term policies come with extra benefits like job retraining so that you can re-enter the workforce if you are no longer able to perform your old job.

Policies will often pay out benefits depending on how they define “disabled,” and coverages engage in various circumstances:

• Some will pay only if you cannot work at all.
• Some will only pay out benefits if you can’t work in any job that you are qualified for.
• Some will pay if you can’t perform a job in your current occupation.
• Some will even cover partial disabilities and will pay a portion of benefits if you are able to work part-time or in light duty with lower pay.

Short-term policies:

• Replace 60% to 70% of base salary
• Length of payments varies for a few months up to one year.
• Usually have a waiting period of about two weeks between the time you become disabled and when you receive your first benefits.

Long-term policies:

• Replace 40% to 60% of base salary.
• Will pay benefits until the disability ends or a set number of years after the policyholder retires.
• Usually have a waiting period of 90 days from the time of disability until the first benefit is paid.

Buying your own disability policy

Many employers will offer voluntary disability insurance, but often policies may not be sufficient to cover you if you are disabled as they are typically capped at a certain percentage of your salary. In that case, you may want to supplement the coverage if your salary is much greater than the maximum benefit.

We can work with you to determine the amount of disability coverage you would need if you also have access to a voluntary plan through your employer. Just remember that the maximum amount of salary that you would be able to replace through your policies is 75% from all of the policies combined.

The benefits of a personal disability policy are:

• You can customize coverage with additional coverages like job retraining and cost-of-living adjustments each year.
• The policy stays with you if you change jobs, and for as long as you keep up the premiums.
• Benefits paid are not taxed, unlike a policy that your employer may pay for.
• Costs

Premiums for a long-term disability policy usually range from 1% to 3% of your annual income.

Factors that can affect the premium include:

• Your age.
• Your health.
• Your gender (women pay more than men).
• Smoking.
• Your job (high-risk jobs mean higher premiums).
• Policy definition of “disability.” The narrower the definition, the lower the premium (see above).
• Length of waiting period for when the insurer starts paying benefits.
• Your income.
• Length of time that benefits are paid.
• Additional features like job retraining, cost-of-living adjustments.