How would you feel if that asset lost value or became worthless tomorrow? Would it change your life style? Would it change the lives of your kids, parents and other family members? How would it impact your financial goals and your ability to accomplish those goals? Would you have to move? Could you keep paying your student loans? There are lots of challenges to building and protecting wealth.
For most of us, our largest asset is our ability to generate an income. If you are 35 years old and plan to work until your 66 you have 31 years of earning potential. If you never received a raise of any kind or a bonus and made $90,000 per year, your cumulative earnings potential would be $2,790,000. If your income increased 3% per year (to keep up with inflation or by way of pay increases) your cumulative income would be worth $4,650,249.
Your life is built on your income. Anyone who depends on you depends on your ability to produce an income. What would happen if you lost your ability to earn an income? Look at your budget and your balance sheet. What would happen to your financial situation? What would you have to do to make ends meet? How long could you support your lifestyle until you had to make a hard choice? How would those hard choices affect your future goals?
According to a survey conducted by Kelton Research in 2012, half of working American households couldn’t make it a month before financial difficulties would set in[i]. If you are independently wealthy or close to a financially viable retirement it might be easy to adjust and carry on. If you are 35 years old with two kids and a mortgage the loss of your income for six months or a year could be extremely challenging or devastating.
One of the most undervalued protections that individuals, families and business owners frequently overlook is disability insurance.[ii] If you have people who depend on your income today or in the future, now is the time to review your coverage with a financial professional. Having a disability policy can add a lot of protection to your financial strategy and reduce the chances you will have to drastically change your life style or liquidate assets at inopportune times as the result of a loss of income due to illness, chronic illness or injury. Policies are designed to replace a portion of your income for a set duration of time while you are disabled.
If you have a policy at work, learn the details of the plan. What you will most likely find will be underwhelming. Most group plans only pay a benefit in the event of a catastrophic disability and coverage is very limited. The policy is typically controlled by your employer and isn’t portable. Group policies frequently have a stringent definition of disability, require no medical underwriting and pay benefits to you that are taxable for period of time that may not even be defined. (Could be 2 years, could be to age 65)[iii]
Adding a supplemental policy could provide more detailed and comprehensive protection with a more liberal definition of disable. An example would be benefits paid if you are partially disabled, disabled as a result of pregnancy or depression. Benefits received from a personally owned policy are received tax free; and give you control over coverage and portability not available in your group plan. There could also be additional protections available in an individual policy not available in a group plan.
Examples of a few additional protections in personal policies include but are not limited to: a provision that will pay a benefit to you if you have to take time off to take care of a family member who has become disabled[iv], a provision that will pay your student loans while you are disabled[v], a provision that will pay your Cobra medical coverage premiums in the event in the event you become unemployed due to disability.[vi]
There are a lot of options in the disability space. Insurance companies provide a range of benefits that can vary depending on what line of work you do and what you are most concerned about protecting.
If you would like to learn more about disability insurance as it relates to your personal situation please contact me to schedule a no-obligation consultation.
Kit Lancaster is a Financial Advisor and Certified Financial Planner Professional from Chicago, IL. He enjoys working with professionals, families and business owners who have a desire to be financially successful and desire courses of action, education and perspective to aid them in accomplishing their financial goals. Kit holds regular educational events in Chicago and online.
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Trk # is 1798298 and dofu is 5/2017
[i] http://www.lifehappens.org/insurance-overview/disability-insurance/
[ii] http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
[iii] https://www.linkedin.com/pulse/doubletree-hotel-mag-mile-exceptional-example-company-karen-felix?trk=v-feed&lipi=urn%3Ali%3Apage%3Ad_flagship3_feed%3BcneJqCtpvwQv1qZVNnpj6w%3D%3D
[iv] https://www.standard.com/financial-professional/IDI-connect/opens-and-closes-unique-family-care-benefit
[v] https://www.guardianlife.com/news/guardian-brings-income-protection-new-level-student-loan-protection-program
[vi] http://www.bairdfinancialgroup.com/bairdfinancialblog/2016/7/7/ameritas-cobra-premium-benefit