Do You Need Disability Insurance?

If you work for a living, the answer is yes, so don’t overlook protecting your biggest asset. Open enrollment season is the perfect time to assess your options.

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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.

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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.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Frank J. Legan
Partner, Financial Adviser, Cedar Brook Group

Frank Legan is Partner, Financial Adviser and member of the Forward Look Committee at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families and retirees. He specializes in lifetime income strategies, investment advice and estate planning services. He also works with businesses to develop strategic and succession planning strategies. He is the author of "The Humanity Factor," a book about focusing on your strengths, guiding you through a personalized, step-by-step guide to financial planning.