February 15, 2005

Disability Insurance

Last Sunday the New York Times did an article on disability insurance. The focus of the article was a woman who suffered from carpal tunnel syndrome and could not work as a dental hygienist. Unfortunately for the woman, her insurance company would no longer pay her disability benefits even though her insurance contract was good for her lifetime. Needless to say, lawyers are involved.

Perhaps it is stories like this make people less receptive to disability insurance. The confusing nature of the policies themselves make it hard for people to understand and for insurance agents to sell. Also, many people do have some type of coverage through work. If you do have disability insurance through work it is important to know if the premiums are paid with pre- or post-tax dollars. If they are paid with pre-tax dollars then the benefits received are tax free, otherwise they are taxable.

Most people, however, are under-insured when it come to disability insurance. The likelihood of becoming disabled is much greater than a premature death and it most cases a disability is more costly than a premature death. While the dead person does not incur any more expenses once they are in the ground, the disabled person still incurs large expenses while not earning income. In financial planning parlance this is called the "living death".

While not wanting to sound like a disability insurance salesman, it is important for people to review their situation regarding disability. The standard rule of thumb is to have benefits that replace 60% to 70% of pre-disability income. If you do need additional insurance make sure you speak with someone who truly knows and can explain the product to you.

Hey, what about Social Security disability benefits? Good luck.

2 Comments:

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