Open enrollment season is upon us, and while many people associate it with making decisions about health insurance, it's also the perfect time to evaluate your disability insurance coverage.
Often overshadowed by health insurance, disability insurance plays a crucial role in safeguarding your financial well-being and is a vital component of a financial plan.
I’m committed to showing you why it deserves your attention.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Consider this: Your ability to earn a future income is arguably your most substantial financial asset. If you're young and have many years of work ahead, the total income you'll earn over your career can amount to a considerable sum. This future earning potential is a significant asset that you should protect.
Think about your current annual salary and multiply it by the number of years you expect to work. The result is a substantial figure that represents your potential lifetime earnings. Your home, car or other assets likely pale in comparison to this financial resource. Therefore, safeguarding your ability to earn an income is a prudent financial decision.
Why you need disability insurance
However, some individuals underestimate the need for disability insurance, believing that they won't experience an accident or illness that would render them unable to work. While no one wants to think about worst-case scenarios, it's crucial to acknowledge that most disability claims arise from unforeseeable circumstances like chronic illnesses or serious accidents, not merely workplace accidents or ladder falls. The reality is that anyone can face a disabling condition, regardless of age or occupation. Chronic illnesses and serious accidents can strike unexpectedly, leaving individuals financially vulnerable.
Certain careers naturally embed the importance of disability insurance. Medical professionals like doctors and dentists, for instance, recognize the critical role disability insurance plays in safeguarding their livelihoods. A loss of dexterity in a surgeon's hand or an impairment that affects a dentist's ability to practice can have devastating financial consequences.
Another perspective to consider is the world of professional sports. When fans watch their favorite athletes on the field, they understand the significance of these players' ability to perform at their best. When an athlete sustains an injury that sidelines them, it not only affects their career but also their financial stability and the stability of their family.
How to choose disability insurance
There are several things you should look for when assessing the best type of disability insurance for you. Some policies have different definitions of “disability” than others — some cover the inability to perform specific job duties, while others require the inability to work any job. The benefit amount is also key; ensure the policy covers a sufficient percentage of your pre-disability income.
Assess your current employer’s offerings and decide what makes the most sense based on some of those qualifications. If those offerings don’t seem adequate, or worse, your employer doesn’t provide disability insurance at all, you can seek additional coverage through a supplemental disability policy to fill potential gaps. Exploring an individual policy is also an option.
If you’re self-employed, you don’t have the safety net of employer-provided benefits, so there are some important considerations you need to make when it comes to evaluating disability coverage. Again, individual policies are options, and like any other individual, you’ll need to determine how much of your income you’d need to replace to maintain your lifestyle as well as cover business expenses if you’re unable to work. There are also things like business overhead expense (BOE) insurance policies to help keep your business afloat if needed.
One of the most important things to consider when enrolling in disability insurance is to plan for future changes. Like most things, your disability insurance needs may change over time. Maybe you got a new job, a promotion (an increase in salary means you’ll need to increase your insurance coverage), or you’ve had a change in your health status. It’s important to take a look at your coverage each year to make sure any necessary changes are made to ensure you’re protected at the highest level possible.
No matter your situation, it’s crucial to consult with a financial adviser to assess what makes the most sense for you.
Yes, it can be an added expense, but …
Indeed, disability insurance can be perceived as an additional expense, and many individuals are averse to allocating funds for something they hope never to use. Addressing the cost barrier, it's worth noting that group disability insurance can provide cost advantages compared to individual policies. Being part of a group plan can result in more favorable pricing, making it a more affordable option than going solo in the insurance market.
In conclusion, open enrollment isn't just about selecting health insurance; it's an ideal opportunity to evaluate your disability insurance coverage. Your ability to earn a future income is your most significant asset, and disability insurance can protect it from unforeseen circumstances. Don't overlook this crucial aspect of your financial plan and consider the financial security it can provide in the face of unexpected challenges. By doing so, you'll be taking a proactive step toward securing your financial well-being.
Securities offered through Cadaret, Grant & Co., Inc., an SEC Registered Investment Advisor and member FINRA/SIPC. Advisory services offer through Cadaret, Grant & Co., Inc., and Cedar Brook Group, and SEC Registered Investment Advisor. Cadaret, Grant & Co., Inc., and Cedar Brook are separate entities.
Related Content
- Where Disability Benefits Are Worth the Most: How Your State Stacks Up
- Five Mistakes Veterans Most Often Make When Filing for Disability Benefits
- What to Look for in a Disability Insurance Policy
- Single-Premium Insurance: A Different Way to Pay for Coverage
- Are You Too Young for Life Insurance?
-
Does My Car Insurance Cover Rental Cars?Is it safe to decline the extra coverage car rental companies offer you when booking? Here's what you need to know.
-
Outsmarting the AI Job Algorithm: Why Older Women Need a StrategyWhen you're job hunting, AI may undermine your best efforts. Here's how older women can throw a wrench in the algorithm.
-
I'm an Investment Adviser: Here's Why You Should Resist a Zero-Down MortgageWhile it's certainly enticing, a zero-down mortgage comes with significant risks, especially if home values decline or you want to refinance.
-
I'm Embarrassed to Ask: What Is a Life Insurance Trust?Life insurance trusts, particularly irrevocable life insurance trusts (ILITs), can minimize estate taxes and protect your heir's inheritance.
-
Are Your Employees Quietly Cracking? How to Repair the Cracks Before Everything BreaksSome employees who are unable to change jobs due to economic conditions are doing only the bare minimum, leading to decreased work quality and team morale.
-
Headed for the Retirement Red Zone? This Eight-Step Game Plan Helps to Avoid FumblesThese strategies help safeguard your nest egg and ensure long-term financial success during the five years before retirement and the five years after.
-
I'm a Financial Planner: This Is How You Can Get Started With RMDsThe IRS will come knocking for its share of your tax-deferred retirement savings when you hit 73, but planning ahead for RMDs will ensure you're ready.
-
How Will You Replace Your Paycheck in Retirement? A Financial Adviser's Tips on Income PlanningBills don't stop once you retire — and you can't expect your Social Security checks to cover them all. Don't risk running out of money. Instead, make a plan.
-
From Pets to Paintings: The Little Things That Can Cause Big Estate TroubleSentimental items might have little monetary value, but their disposition can cause hurt feelings. Talking about who wants what and labeling items can help.
-
The Clock Is Ticking: Take Advantage of These Retirement Tax Benefits While They LastRecent tax changes, including an extra $6,000 deduction for those 65 and older, present a golden opportunity for retirees to reduce their tax bills.
