I’ve read my fair share of personal finance books and even more fiscally related blog posts and newsletters. One piece of advice I hear touted over and over again is the need for disability insurance. The point finally hit home when I realized that most of us are insured just fine if we die, but what happens if we just get injured and can’t work?
According to the U.S. Census Bureau’s report “American’s with Disabilities: 2005,” 18.7 percent of the country’s population that year had some level of disability. Based on those numbers, I clearly see that income replacement at some point is a possibility for many of us.
If you want to maintain your current standard of living if injured, seriously ill and unable to work, you’ll need disability insurance. According to personal finance expert Suze Orman in her book “The Road to Wealth,” private disability coverage makes up for weaknesses in the Social Security Administration’s policy, which for many families is simply not enough. Here’s what Orman says to look for in a policy.
Sixty to 70 percent
At 60 to 70 percent of your current income, you should be able to maintain close to your current standard of living if unable to work in your current job. In addition, Orman advises double-checking to ensure the policy covers both illness and injury.
Owner’s occupation
In her book, Orman says an owner’s-occupation policy will pay out when the insured becomes injured or ill and is unable to perform his or her current occupation, not any occupation. Being totally unemployable is the only condition that an “any-occupation” plan would cover.
Other items to note
A policy that’s “guaranteed renewable” ensures that your policy cannot be canceled for any reason other than non-payment of premiums. “Residual benefits” pay a percentage of your old salary so that any future, lesser salary earned meets the guidelines in the policy.
Lastly, in her book, Orman suggests looking for low elimination periods (the amount of time you’ll wait for payouts to begin after becoming disabled) as well as cost of living adjustments to help you keep up with a rising cost of living over time.
Molly Logan Anderson is a freelance writer who lives in the western suburbs of Chicago with her husband Mike, three kids and black lab. Join Molly on her family’s journey of living a frugal life and making financial freedom their reality.
