Disability and Your Finances
The Social Security Disability Insurance program paid out $130 billion in benefits to 10.6 million individuals in 2011. And with a rush of new applicants lining up each year, the system is expected to exhaust its reserves by 2017 if changes aren’t made.¹
Rather than depending on a government program to protect their income in the event of a disability, many individuals prefer to protect themselves with personal disability insurance.²
Disability insurance provides protection by replacing a portion of your income, usually between 50% and 70%, if you become disabled as the result of an injury or illness. This type of safeguard may have considerable benefits since a disability can be a two-fold financial problem. Those who become disabled often find they are unable to work and are also saddled with unexpected medical expenses.
What About Workers Comp?
Many people think of workers compensation as a disability safety net. But workers compensation pays benefits only to individuals who become disabled while at work. If your disability is the result of a car accident or other off-the-job activity, you may not qualify for worker compensation.
Even with workers compensation, each state makes its own rules about payment and benefits, so coverage may vary considerably. It might make sense to find out what your state offers and plan to supplement coverage on your own, if necessary, especially if you have a high-risk profession. Likewise, if you have an active lifestyle that puts you at a higher risk of disability, considering an extra layer of protection may be an option.
If you become disabled, personal disability insurance can be structured to pay a benefit weekly or monthly. And benefits are not taxable, if you have paid the premiums in full.²
When you purchase a policy, you may be able to tailor coverage to suit your needs. For example, you might be able to adjust benefits or elimination periods. You might opt for comprehensive protection or decide to define coverage more specifically. Some policies also offer partial disability coverage, cost-of-living adjustments, residual benefits, survivor benefits, and pension supplements. Since coverage is designed to replace income, most people choose to purchase protection only during their working years.
Even as changes are made to federal disability programs, they typically provide only modest supplemental income, and qualifying can be difficult. If you don_t want to rely solely on Uncle Sam in the event of an unforeseen accident or illness, disability insurance may be a good way to protect your income and savings.
Out of Commission
According to the most recent data available, 62% of disabled Americans are completely unable to work, while 38% can work in a limited capacity.
Chart Source: ACLI Life Insurers Fact Book 2011, 2011
- The Wall Street Journal, December 15, 2011
- The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Federal and state laws and regulations are subject to change, which would have an impact on after-tax investment returns. Please consult legal or tax professionals for specific information regarding your individual situation.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2013 FMG Suite.
Protective Life does not engage in the business of issuing disability insurance. This article is for information and educational purposes only and does not necessarily represent the opinion of Protective Life. Protective Life did not assist in the preparation of this material. For information about Protective Life and its products and services, www.protective.com.
Protective and Protective Life refer to Protective Life Insurance Company (PLICO) and its affiliates, including Protective Life & Annuity Insurance Company (PLAICO). Investment Distributors, Inc. (IDI) the principal underwriter for registered products issued by PLICO and PLAICO, its affiliates. FMG Suite is not an affiliate of PLICO and is responsible for its own financial conditions and obligations.