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Disability Insurance

Your Biggest Financial Asset is Not Your Home

By May 4, 2011 February 26th, 2019 No Comments

Your most important financial asset is not your home, your car, your jewelry or a retirement account. It’s your paycheck. Your ability to earn a living is what fuels your family’s future of buying a home, putting your kids through college and building a nest egg for retirement. But what would happen to you and your family if those paychecks stopped?

We protect our cars and our homes, but a large number of families’s do not protect the absence of a paycheck.  For 70% of Americans, not earning a paycheck would create financial difficulties within one month. Disability insurance (DI), sometimes referred to as income protection, is exactly that -protecting your ability to earn a living. If you become sick or hurt and unable to work, you’ll receive payments to help you continue paying living expenses such as rent, mortgage, car payment, food, insurance, utilities, medical expenses and more.

The Real Risk of Becoming Disabled

Unless you have experienced being disabled or know someone that has become disabled, most people think the odds are very small that something could happen to them. However, nearly one out of three women and one out of four men can expect to suffer a disability that keeps them out of work for 90 days or longer at some point during their working years. Long term disabilities are also a reality. One worker in seven are expected to be disabled for five or more years before retirement. When you imagine a 30 year-old earning $50,000 per year being disabled for life, that could be more than $1.7 million in lost future earnings.

Sources to Replace Your Paycheck

Workers Compensation: If you are a PA employee and sustain a job injury or a work-related illness, the Pennsylvania Workers’ Compensation Act (Act) provides for your medical expenses and, in the event you are unable to work, wage-loss compensation benefits until you’re able to go back to work. Wage-loss benefits are equal to approximately two-thirds of your average weekly wage, up to a weekly maximum. Remember that this coverage only applies to employees and disabilities at work. According to The National Safety Council nearly 90% of disabilities occur outside of work and Workers Compensation would not be available for the vast majority of disability cases.

Social Security Disability: Most salaried workers in the United States participate in the federal government’s Social Security program that also can provide disability benefits. However, eligibility is based on being unable to perform any gainful employment (not just the job you were performing at the time the disability began), rougly 60% of applicants are initially denied and the average benefit is just above the poverty line of $1,004 per month.

Employer-Sponsored Disability: Many employers, especially larger ones, provide employees with group disability insurance. These types of policies provide income protection both inside and outside of work and typically replace 60% of your base salary. If you have disability through work, find out what benefits your employer offers. Sometimes employer plans may only last 6 months or have a 180-day waiting period before any payments are made. A group plan is not customized for specific individuals and the benefits may not meet your financial needs.

Individual Disability Insurance: An individual disability policy is the most flexible and reliable way to protect your paycheck. Policies are specifically tailored to your financial situation and the policy is owned by you, meaning you don’t have to worry about losing coverage if you change jobs. Generally, policies are paid with after-tax dollars, meaning the benefits you receive will be income-tax free.

Overall, Disability Insurance is one of the most important but one of the least talked about insurance coverages. Most people either believe the odds of becoming disabled are negligible or a program like Social Security Disability will replace their entire income if they are unable to work. However, just like so many things in life, education is key. As we enter into Disability Awareness Month please consider sharing this article or the official Disability Insurance Awarness website with a friend or family member that needs to protect their paycheck.