It probably doesn’t show up on your calendar, but May is Disability Insurance Awareness Month.
That shouldn't be surprising when you consider the following:
• Three in 10 people entering the workforce will become disabled before retiring, according to the Social Security Administration.
• At age 42, you are four times as likely to become seriously disabled than to die during your working years, according to National Underwriter Life & Health.
• Disability causes nearly 50 percent of all mortgage foreclosures, according to Health Affairs, a health policy research journal.
You can be really good at budgeting your money and you can be a disciplined long-term investor, but unless you’ve protected at least a reasonable percentage of your income, your whole financial strategy is incomplete.
And all your goals, such as a comfortable retirement, could be jeopardized.
Consequently, you might need to think about purchasing an individual disability insurance policy.
Here are some tips:
• Look for a policy that is “non-cancellable” until you reach age 65. Such policies' premiums can’t change, provided you pay them on time.
• Pick the right waiting period. Typically, disability insurance policies don’t start paying benefits immediately; there’s usually a waiting — or “elimination” — period ranging from 30 days to two years.
A shorter waiting period is more desirable, but it’s probably also going to be more expensive. You may be choose the longer waiting period if you have an emergency fund containing six to 12 months’ living expenses kept in a liquid account that offers significant principal preservation.
• Avoid overly restrictive policies. You may want to avoid an "accident-only" policy or one with a limited benefit term (five and 10 years are common). These policies may be cheaper, but they don’t cover either a disabling illness or the entirety of your working life.
• Consider adding appropriate “riders.” It will likely add to the policy cost, but a cost-of-living rider will help protect your future benefits from inflation's effects. You also might want to add a future income options rider that provides you with the ability to purchase additional coverage in the future with no further medical underwriting.
Your financial adviser can help you determine whether you need a private disability insurance policy — and, if so, which one suits your needs.
Joe Faulk is a financial adviser.