Monthly Archives: June 2012

Is disability insurance worth it ?

Whether we believe it not, we are far more likely to suffer from the pain of disability than premature death during our working lives regardless of our age. Although the statistical probability of death rises with age and narrows the probability gap between disability and death, the fast fact is that if we have only thought of insuring our lives, we exposing ourselves and our families to a huge risk: lost income as a result of disability.

The reality that disability plays in our financial lives is a real one. Insurance companies have seen tremendous growth on the disability side of their books of business. It is a good albeit expensive product that nearly everyone under the age of 50 (or even older depending on debt levels and other financial responsibilities) should investigate.

But the other reality is that not all disability policies are worth the paper they are printed on. There are many disability policies that will charge way more than the minimum benefit you will need, making it a waste of money, either entirely or partially. Before considering a disability policy, keep the following points in mind.

  • Check out the policy when it will come into effect. Some policies do not come into effect if any other insurance policies runs out, such as a short-term policy through your employer or group policy. Other policies may only come into effect after 90 days of disability, leaving you short for the first three months, which may also happen to be the most financially draining. There are some other policies that will only “top up” what another policy does not cover. For example, your employer-sponsored policy may cover just 60% of the wages and the stand-alone disability policy may only cover up to 40% to make up the difference. The premiums are not reduced accordingly.
  • What is the tenure of the maximum benefit. Many disability policies will cover up to a maximum number of months. In the case of a disability policy that will only cover you for twelve months, consider that average disability for people under the age of 40 is thirty six months.. your twelve months of coverage will help for just one third of disability period. Understand the benefits and see whether it is sufficient or not.

If you know these two things, it is a good start. But there are other specifics that may apply to you, such as premium reset periods, disabilities covered, qualifying criteria, underwriting method, and so on. A good way to start is the policy itself. If you are not able to understand the terms clearly, consult a broker and don’t be afraid to contact the insurance company directly with your concerns. Make a note of everything on letterhead so that you are not left stranded in the event of a claim.

Disability insurace is very popular because of its benefits, but it is very expensive at the same time. Thats why it is very important to make sure that you understand all the terms and conditions of the policy before you start spending towards the premium payments.

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