Protecting your most important asset

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Your income is your most valuable asset and a potential disability is your highest risk of all. This makes disability insurance an instrumental component of a comprehensive financial plan. Before I share important terms you should know in a disability insurance policy, let me first answer some questions that cause many people to procrastinate getting disability insurance.

“I am in good health, I know I can earn a living.”–Christopher Reeves (Superman) thought he’d leave this world with a lasting impression of him flying through the air.  I can’t shake the images of him in the wheelchair. Although he continued to earn a living, I doubt if he made the same type of money he made prior to his disability. You can sustain an injury or illness in a number of ways including, accident, work-related injury or some unforeseen medical condition.

“Won’t Social Security help me?”–I have an aunt who suffered a stroke in 2003. Her physical limitations resulting from the stroke were obvious.  It took the assistance of an aggressive attorney, two appeals, and nearly 4 years before she received a check from Social Security. Obtaining disability income from Social Security is extremely difficult.

The definition of disability under social security is very rigid and requires a mental or physical impairment that prevents you from engaging and what they term “substantial gainful employment” (roughly $900 per month) for a minimum of 12-months or be expected to result in death.

There are two types of disability insurance–short-term and long-term. Long-term insurance is the more important of the two. Disability insurance replaces between 50 and 70 percent of your gross income with the average being 67 percent.  If you pay for your premiums, the income from disability insurance is tax-free. However, if your employer pays the premium, the income is subject to taxation. Premiums are based primarily on the type of work that you do.

A fireman, police officer and someone who works around machines will pay a higher premium than someone who works in an office setting. Group disability insurance offered through your employer is offered at a very reasonable price.  If your employer does not offer disability insurance, you can purchase an individual policy.  The average price is about $40 per month.

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