What would you do if you were physically unable to earn an income? Would you be prepared to cover your mortgage? Your utility bills? Living expenses?
If you’re like most people, probably not: more than 50 percent of working Americans wouldn’t last a month without a paycheck before falling prey to financial troubles, according to a recent LIFE Foundation survey.1
Fortunately, there is a way to protect your hard-earned dollars, even if you can’t bring home a biweekly paycheck: disability insurance. Essentially, this type of coverage can provide a financial “safety net” for you and your family if you are unable to work due to injury or illness.
Sounds like a no-brainer, right? Not quite — believe it or not, disability insurance is one of the most overlooked coverage options available today. In fact, while more than 60 percent of people believe that disability insurance is necessary, only 26 percent actually have it.2
If you’re a part of this group, it’s not too late to get covered. In honor of National Disability Insurance Awareness Month, we asked three of our advisors to share their perspectives on why it’s important to be financially prepared in the face of disability, at any stage of life.
1. “Your income is your most valuable asset — and you need to protect it.”
“When working with clients, I’ll often ask the question, ‘What is your most valuable asset?’ The most common response I receive is, ‘Our home.’ But in fact, for many of these clients, their most valuable asset is actually their ability to earn income — they just don’t realize it.
No one would consider owning a home without insuring it, but a surprising number of people fail to insure their income against the number-one risk that could affect it: a long-term disability. If you haven’t done so recently, ask your financial advisor to assess your disability insurance arrangement. Being proactive can go a long way in protecting your current and future financial standing from the unexpected.”
2. “Disability knows no age.”
Cassandra Latsios | Associate Advisor at Wipfli Hewins
“For millennials just starting out in their careers — many of whom have significant debt — it can be stressful to add another item to an already-long list of expenses. However, life-changing accidents or injuries know no age. Even if you’re in the early stages of your working career, a disability that keeps you out of work for a certain period of time or from continuing to work in your career of choice (or in any career, for that matter) can be catastrophic for your finances.
In fact, disability can be even more devastating for young people, as they typically have little to no savings and significant amounts of debt, and as a result, may have to live the rest of their lives with significant expenses, due to an injury that leaves them unable to work at their full potential — if at all. Their lifetime earning potential could be cut in half or down to zero, leaving limited income with which to pay expenses, pay down debt and save for the future.
Disability benefits are crucial to protecting you, as an individual, as well as your greatest asset — your ability to work — against a loss of income associated with short-term or long-term periods of disability. Many employers offer disability coverage as a benefit to their employees. Rather than add another stressor to your life mid-crisis, now is the time to make sure you have disability insurance coverage and that it’s enough to meet your needs.”
3. “Don’t ‘set it and forget it.’ You should revisit your disability insurance coverage each time your needs change.”
Mark Albers, CPA, MST, CFP® | Senior Financial Advisor at Wipfli Hewins
“It’s important to keep in mind that disability insurance isn’t one-size-fits-all; there are numerous variables to consider, such as the benefit amount, waiting period, occupation definition, issuer and length of the coverage, to name a few. Those variables may be different for people in different stages of life — for example, you may develop a specialization at work as you progress through your career, meaning it may be important to consider different occupation definitions over time.
Also, keep in mind that if your income level changes throughout your career, you may need to revisit your benefit amount to ensure you’ll still have enough to cover your living expenses. The length of coverage you have may change over time, as well. If you’re younger, you may opt for coverage through age 65 or 67, as a default. But as you near retirement, you may have a better idea of how long you want to work and opt for a set number of years that better matches that time horizon.
A financial advisor can help you sift through the options and determine what, if anything, is right for you.”