Everybody understands the value of life insurance and most of us who take our finances seriously have a solid life insurance policy in place. But what happens if you are unlucky enough to sustain a serious illness, chronic disease or disability which prevents you from working? Your ability to earn income is your most valuable asset. Disability insurance is designed to protect you from a possible loss of income. What’s the possibility of this happening? Below are some statistics on disabilities occurring at different life stages.
Disability insurance provides you with a portion of your income in the event that you suffer from an illness or accident which means that you can’t work, either temporarily or on a permanent basis. Studies show that you are actually more likely to sustain a disability during the course of your working life than to die whilst of working age. A disability can have a dramatic and long-term impact on your earning potential – in fact, the Council for Disability Awareness has found that the average absence from work for a long term disability is nearly three years.*
There are two main types of policy – short-term and long-term disability insurance.
An important factor in this regard is the definition of “regular or own occupation” or “any occupation”. A “regular or own occupation” policy covers you if you are unable to work in any capacity – meaning that, even if you could perform a role different to the one that you worked in prior to your disability, you will still receive benefits under the plan. Alternatively, an “any occupation” policy means that you will only receive disability benefits if you are unable to work at all. It’s important to figure out which type of policy suits you better, depending on the cost of the premiums, the type of work that you do and your personal preference. We can help you with this.
Dependency is the key question here – if you have a spouse, children and/or other individuals who rely on your income contribution to the household finances, disability insurance is likely to be valuable to you. However, it is likely that, as you age and your children become less financially dependent on you or you have saved enough retirement funds to help you through a potential early retirement due to ill health, disability insurance becomes less fundamental.
Some companies offer a disability policy and this is a common reason for people failing to purchase a personal plan. However, it’s important to understand the level of coverage that your company policy offers you, as it is common for such plans to only replace a small proportion of your income (often capped) across a short-term basis which is unlikely to be sufficient for your needs.
You could benefit from working with an independent financial advisor to help you in the purchase of your disability insurance. They will be able to search the market in order to find you a customized plan which fits your budget, rather than falling back on off-the-shelf policies which may not meet your individual requirements as well.
That said, it’s easy to underestimate the level of disability coverage that you actually need should the worst happen. Not only would you have to replace your existing expenditure, but you are likely to accumulate new expenses if you were to become disabled, such as the purchase of medical equipment, healthcare or home help, additional childcare, home renovations etc. Make sure that the benefits that your policy pays out are sufficient to cover all of your financial needs adequately.
There can be a lot of small-print involved in a disability insurance policy. Make sure that you understand the answers to the following, non-exhaustive questions before proceeding:
Disability insurance is an important cornerstone to achieving your financial goals.
Talk to us, we can help.
Horizon Financial Group