You insure your most valuable assets like your home, your car and your life. Most people would agree that they’re worth protection; however, disability income (DI) insurance is something people tend to be less certain about. They’re not sure if they really need it, or if it’s worth the cost. There’s no cut-and-dried answer, but there are some strong arguments to be made in favor of DI.
What Are the Chances You’ll Need It?
When you think about the kind of disability that could keep you from working, usually the first thing that comes to mind is a car accident or other catastrophic injury — in other words, something that could happen, but most likely won’t.
In reality, the most common cause of disability is illness, not accidents or injuries1. Arthritis, back pain, neurological problems and cardiovascular illnesses are all more common than injuries when it comes to disability claims2. And, disabilities are more common than you might think. In fact, one in four 20-year-olds will become disabled before they reach retirement age3.
What is DI?
DI is insurance for a portion of your income. And your income is your most valuable asset. It’s what pays for your essential expenses like housing, food, utilities, clothing, transportation, as well as your not-so-essential ones. Your income may also help support members of your family.
If you had to stop working due to a disability, the income you’re earning now simply wouldn’t be there anymore. You’d have to find another way to cover your living expenses and to support the people who depend on you. That’s where DI comes into play.
What about Other Options?
Of course, there are a few other sources of income you might be able to draw on if you become disabled. Many people have what’s called group long-term disability insurance through their employer.
If you leave for another job, you may not be able to take your disability coverage with you and your new employer may or may not provide the same benefit. Additionally, if your employer pays for the policy, the benefits you would receive if you became disabled would be taxable.
Most important, the kind of disability insurance you get from work typically only covers about 60 percent of your income, not including any bonuses or commissions you may normally receive. The other 40 percent is up to you. While disability insurance won't cover 100% of your income, an individual DI policy can help provide additional protection.
Protecting Your Most Valuable Asset
With any luck, you’ll never have to deal with a disability that keeps you from being able to work. But it’s a good idea to have a plan in place, so that if you ever did become disabled you could still cover your expenses and provide for the people who count on you.
1 Council for Disability Awareness 2014 Long-Term Disability Claims Review; Disability Claims by Diagnosis.
2 Council for Disability Awareness 2014 Long-Term Disability Claims Review.
3 US Social Security Administration, Fact Sheet, 2018.
The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Disability income insurance policies issued by Massachusetts Mutual Life Insurance Company (MassMutual) (Springfield, MA 01111-0001). Policies have exclusions and limitations. For costs and complete details of coverage call your agent or MassMutual at 1-800-272-2216 for a referral to an agent.
Provided by Karen Melo Ticas, a financial advisor with Baystate Financial, courtesy of Massachusetts Mutual Life Insurance Company (MassMutual).