Most people insure their home, their car, and their life. But what about their income? That’s what disability insurance is for. If you become sick or injured and can’t work, disability insurance replaces part of your paycheck so you can keep paying bills, saving for the future, and supporting your family. Statistically, you’re far more likely to suffer a disabling injury or illness during your working years than to die unexpectedly. The goal of disability insurance is simple: Keep your income flowing even when you can’t work. Without it, even a temporary setback can derail your financial goals.
How are disability policies structured?
Most policies have a monthly benefit, usually based on your current salary, and a defined benefit period. Benefits kick in after the elimination period – the length of time you must be disabled before becoming eligible. Policies can also include optional riders, such as cost-of-living adjustments, future purchase options, and residual disability.
What are the two main types of disability insurance?
Short-term disability (STD):
- Coverage period: Usually 3-6 months
- Elimination period: Typically 1-14 days
- Income replacement: Generally between 40-70% of income
- Common uses: Parental leave, surgery recovery, temporary illness
Long-term disability (LTD):
- Coverage period: Several years or until retirement age
- Elimination period: Typically 90-180 days
- Income replacement: Generally between 40-70% of income
- Common uses: Serious injuries, chronic illnesses, or mental health conditions that prevent long-term work
What are the LTD policy coverage types?
There are two main categories of coverage for LTD policies: “own occupation” and “any occupation.” Under an own occupation policy, you are considered disabled if you are unable to work your current job. An any occupation policy considers you eligible for benefits only if you are unable to perform any job you’re qualified for. Own occupation policies tend to be the preferred option for high-income professionals.
How much coverage do you need?
The best policy for you depends on your income, expenses, and financial situation. How long could your household function without your income? Are you the primary earner? Do you have young children? Do you have emergency savings? Does your employer provide adequate coverage? Is it portable?
At McKay Wealth, a key part of our financial planning process is helping our clients review their employer benefits packages, identify coverage gaps, and explore options and alternatives tailored to their specific needs. If you would like to learn more about how we may be able to help you and your family, don’t hesitate to reach out.