As COVID-19 has been actively disrupting the lives and businesses of people in the US and the entire world, many people are faced with the new reality of what happens to their income should an injury or illness keep them out of work for an extended period. Protecting Your Income During COVID-19 is extremely important.
You have a three in 10 chance of suffering a disability that keeps you out of work for 90 days or longer for some point during your career*. Furthermore, 90% of disabilities are illnesses, not injuries. In short, if you are employed, you most likely need disability insurance.
Surprisingly, according to a 2019 study by the Council for Disability Awareness (CDA) at least 51 million working adults are without disability insurance other than basic coverage available through Social Security. And that’s not because they don’t see some risk of losing income due to a disability. However, they greatly underestimate that level of risk.
Unfortunately, the facts are that one in four 20-year-olds will become disabled before they retire, CDA notes. And the duration of the average long-term disability is 34.6 months. Couple this with the fact this same study indicates four out of ten American adults indicate they can’t pay an unexpected $400 bill without having to carry a balance on their credit card or borrow money. The absence of emergency savings, rising medical costs, and lack of income protection have created a blind spot for many American workers. May is Disability Awareness Month and a good time to see where you stand on the protection spectrum.
Costs Can Vary
The cost of disability insurance naturally can be a concern, but here, too, there is a wide range of assumptions. Three-quarters of those asked by CDA thought the cost of the insurance was less than $100 per month. The actual range of costs can be fairly wide depending on individual circumstances. A traditional employer-sponsored long-term disability plan can run from $250 to $400 a month, the report said, and some employers offer voluntary plans, where the worker may pay most or all of the cost. Individual disability insurance can cost from 1% to 3% of the individual’s salary, according to CDA.
The need for some income protection should at least be considered as an element of sound financial planning. A first step could be to check with one’s employer to see what is available. If disability insurance is an option through work via a group plan, that can be well worth taking up. But it is also important to ascertain what percentage of income would be covered, and for what time frame. A goal can be to have disability insurance covering 60% to 80% of after-tax income.
It is important to realize, too, that people can have different requirements and needs when it comes to income protection. For the Millennial generation, for example, the ability to earn an income may well be their most valuable asset at this point in their lives, and finding an appropriate coverage should not be too challenging. On the other hand, traditional group disability insurance may be insufficient to protect the income of a highly trained medical professional. Business owners and entrepreneurs comprise another group whose insurance needs often require special attention and expertise. Your advisor at Barnum Financial can answer your questions about disability insurance and help you make sure you have the coverage that is right for you and your family.
Kourtney Zando, Product Solutions Manager
Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000. Any discussion of taxes is for general informational purposes only, does not purport to complete or cover every situation, and should not be construed as legal, tax or accounting advise. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
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