Why Do You Need Disability Insurance? And What Exactly Is it?
Why Disability Insurance?
You have a need for Disability Income Insurance if you:
Have a family budget (just about everyone), and
Work to help fund that family budget (everyone who is not retired or independently wealthy).
Let’s use an example just to be clear. Jessica is an architect working in a local firm, and her income is $85,000 annually. That translates to $7,083 a month. After Federal and State taxes and saving for retirement. she brings home to her family budget approximately $5,500 each month.
These earned monies are accounted for each month. Mortgage or rent, auto and student loans, utilities, mobile, groceries, insurance, etc. Each month. Family budget funded. No worries!
But….what if an illness (90% of disabilities) or injury (10% of disabilities) sidelines Jessica? What if she cannot work, and cannot fund her family budget for 2 years? Or 20 years?
Disability Income Insurance answers those questions, replacing income as a monthly benefit when you cannot work because of a debilitating illness or injury.
The DI policy we designed for Jessica features a $5,000 monthly benefit (replacing almost all of her take home pay, the Disability Insurance is not taxed), and would begin just 90 days after her disability began, and continue until she could return to work, or until age 67, her retirement age.
Family Budget
Facts and Figures
1 in 4
of today’s 20 year olds will suffer a disability and be unable to work for a specified amount of time before age 67, the Social Security retirement age.
Only 10%
of disabilities that prevent someone from working for at least 3 months are due to injury, at work or somewhere else. Fully 90% of disabilities are due to illness!
40% of Families
say they would have a hard time quickly covering an unexpected $400 expense. A disability would further erode their family budget, maybe for years.
$1,000,000+
is what your income over your lifetime* will be. It is your greatest asset! Much more than your home or car. It needs to be protected with Disability Insurance.
*A 27 year old working until retirement at age 67 earning $25,000 annually will earn $1 million in their lifetime. For most people the number will be much higher, most likely millions.
What is Disability Insurance?
Disability Income Insurance is a contract made between you and an insurance company. According to the benefits and options you choose, the contract states:
-that in return for your paying a premium cost (usually 1-3% of your income)
-the insurance company will pay, if you are disabled, a set benefit amount of money to you, to replace your lost income, so you can continue on funding your family budget. The monthly benefit amount you chose begins a few months after your disability stops you from working, and continues until you can return to work, or until your benefit period in the contract ends (can be 5 or 10 years, or until your retirement age; 65, 67 or 70).
Another way to think of a Disability Insurance Policy is that it is a “promise” that you have “options.”
Disabled people with strong Disability Insurance benefits have fewer financial worries, as the insurance company offering the policy has made the promise to continue monthly benefits as income replacement.
This gives the insured person the “options” they want. They have the options to continue their financial life as it was, as their family budget can remain funded. Or they have the options to make changes.
A disabled person without Disability Insurance does not have options. They will need to make changes to their family budget, or risk default, unpaid bills, etc. Their savings will run out, and Social Security Disability benefits are not enough.
These explanations of Disability Insurance have been very general, to explain the idea. See the next page in this “Disability Ins.” tab, entitled “Policy Walk-Through” for details on each part of a Disability Income Insurance policy.