By Fiona Leung on Nov 12, 2019
Life is full of risks, and people make decisions everyday that require weighing those risks against their ability to protect themselves using their own resources or by transferring the risk to an insurance company. Most people realize that they couldn’t afford to rebuild a damaged home or buy a new car without insurance. While these are important and expensive assets, the actual risk of loss pales next to the loss of their biggest asset, their ability to earn an income.
It is well documented that the average person is much more likely to experience a work-ending disability than they are to lose a car or home in an unexpected catastrophe. Based on current statistics, almost one in three people from the age of 35 up through age 65 will experience a disability that will prevent them from earning an income for 3 months or more. Yet, this risk goes unheeded for the majority of working people.
When You Least Expect it
No one expects to become disabled, certainly to the extent that it would prevent them from working for a period of time. Even though it happens all around us – a friend goes down with a debilitating back injury; a relative is hospitalized with a serious illness; a colleague suffers from a severe bout of depression – most people think that it can’t happen to them. And, they sink deeper into complacency thinking that, somehow, their employer benefits will cover them, or the government will provide a safety net.
Disability Protection Essentials
Considering that even a one-year disability could amount to a loss of tens of thousands of dollars in earnings for the average worker, and tens of thousands for a multi-year disability, it’s no stretch to proclaim that one’s ability to earn a living is the single biggest asset they have. And, just as we transfer the risk of loss for our valued assets (car, home, jewelry), so too can we transfer the risk of loss our biggest asset – which is where disability income insurance comes in.
Disability coverage is designed to protect against the loss of earnings up to 70% which is based on the fact that the income benefits are received tax free. And most coverage can be purchased for a set number of years, such as five years. Shorter periods are available, and longer periods are harder to get or much more expensive.
Coverage for disability comes in two forms – own occupation coverage and loss of earnings coverage. Own occupation coverage protects against the inability to perform the duties of one’s primary occupation, even if they are able to perform the duties of another occupation. This type of coverage is difficult to qualify for, as it is only available for certain occupations.
Loss of earnings coverage is designed to replace a portion of lost earnings. Even if a disability results in reduced earnings, this coverage will replace the part of earnings lost.
Buying disability coverage is not unlike buying home or car insurance. The premium is affected by the terms of the coverage; much like a deductible can affect the premium for car or health insurance. For instance, a longer waiting period (the time between the disability occurrence and the receipt of benefits), will reduce the premium. Or, the longer the benefit period is, the higher the premium will be.
Disability coverage has become a specialty insurance that is provided a handful of insurance carriers. It would be important to work with a disability specialist who can tailor a policy to meet your specific needs and budget.
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