Is Your Income Protected? Answers to Your Top 3 Questions about Disability Insurance

Posted by Guest Blogger: Kristen Smith on Oct 17, 2017 8:00:00 AM
Guest Blogger: Kristen Smith
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Given today's economy, it's fair to say that we are all more concerned about our financial situation than we have been in the past. Our awareness of the need to save and plan ahead has been heightened, and everyone, it seems, is looking for ways to economize.

As someone who works in the financial services realm, few things could give me more pleasure than this collective impulse toward saving, investing, and planning for the future. The focus on protecting your assets ties in nicely with the idea of protecting your income. You may have considered what would happen if you were downsized, but perhaps you've neglected to plan for what could happen if you became disabled. Understandably, this is not a popular subject, but it is one we must all consider.

Each year, approximately one in every eight people becomes disabled. Adding to that misfortune is anxiety about the immediate consequences of income loss on hearth and home. Fortunately, disability insurance can substantially relieve that anxiety. When you can't work because of illness or an accident, disability income insurance replaces 50 to 70 percent of your income.

Not sure if you need additional insurance? To help clarify the subject, I've answered 3 of the top questions I frequently get about disability insurance:

  1. Why should I consider disability insurance?
    Although the government provides base coverage to all workers, the process can involve a lot of red tape. Many people get disability insurance through their employers too, but your employer may not provide sufficient coverage for your needs. And those who are self-employed are on their own when finding disability coverage of the type and amount they need.
  2. Who really needs disability insurance?
    Self-employed professionals and small business owners are ideal candidates. Individuals whose salary represents their family's sole or primary source of income also risk financial difficulties if they are not covered. And, in general, people who would find it difficult to maintain their lifestyle if their occupational income were interrupted should be concerned about having coverage in place.

    Admittedly, this definition includes most people, but there are also many people who need not consider disability insurance, such as:

    - Retirees
    - Certain government workers who are explicitly covered under state or federal law
    - Part-time workers who don't rely on their income as a principal source of wealth
    - Individuals whose investment income is sufficient to support their lifestyle

    If you do not fall into one of these categories, keep reading!
  3. How much disability insurance do I need?
    This question is more difficult to answer because it is based on your personal financial situation. A professional can provide an analysis that includes cash flow, other income sources, and future income needs.

    Once the amount you would require is determined, you must consider what type of policy makes the most sense for you. Policy selection revolves around the definition of disabled that each policy employs.

    In order to be considered disabled, you must be unable to work and earn an income at your occupation. Depending on the policy, however, you might also have to be unable to work in any occupation. Below are four distinct definitions of disability and four corresponding types of coverage:

    - Own-occupation coverage means that you are unable to perform the usual and customary duties of your own occupation. This is the most liberal definition of disability because even if you work at another occupation, you will still receive the benefits of the policy. Due to the relative ease with which you can qualify for benefits, insurance companies only issue this coverage to the best candidates with the least risk—and charge the most for it.

    - Any-occupation coverage means that you are unable to perform the duties of any occupation. This is the most restrictive definition because in order to receive benefits, you must be unable to work at any gainful occupation, not just your own. Often, the wording is modified to take into consideration your earnings level, education, training, and experience.

    - Split definition coverage combines both definitions of disability, providing pure own-occupation coverage for a limited time before converting to an any-occupation policy.

    - Presumptive disability coverage protects you in the event of a catastrophic ailment that is utterly disabling. Benefits will be paid even if you are able to earn a living. Catastrophic ailments include the loss of sight in both eyes, hearing in both ears, ability to speak, use of both hands or feet, and/or use of one hand and one foot.

There are other considerations to keep in mind when purchasing disability insurance. A professional can help you explore your insurance options, and even if you cannot obtain coverage, he or she can work with you on a financial plan that allows you to feel safe no matter what tomorrow brings. 

As a guest blogger, I'm unable to respond to comments posted below, but if you have any questions please feel free to contact me directly and I will be happy to help!

*Kristen Zavaski is a guest blogger, representing Axial Financial Group in Burlington, MA. She offers securities as a Registered Representative of Commonwealth Financial Network, Member FINRA/SIPC. CRR, LLP (also represented as CRR, CRR CPA), Axial Financial Group, and Commonwealth Financial Network are separate and unrelated entities. Kristen can be reached at 781-273-1400 or

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend that you consult a tax preparer, professional tax advisor, or lawyer.

Topics: Wealth Management