Disability Insurance - Is it Worth the Investment?
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Should I Have Disability Insurance?

Disability insurance covers your earned income in the event of a disability that prevents you from doing your job. If you are no longer able to earn an income, but still have spending needs, then you can end up being a burden on your loved ones. The loss of an income can be financially devastating if not properly planned for; having a safety net can make a lot of sense, particularly for families with a sole breadwinner.

Who Should Have Disability Insurance

Typically, all employed people should consider this type of insurance. Because its main purpose is to replace income lost due to a disability, it’s good for self-employed individuals, households with a nonworking spouse, and people without an employer sponsored policy. Disability insurance is usually structured to replace 60%-70% of monthly income. You can choose the length of your elimination period (the period between injury and receipt of benefit payments); although 90 days is the most common length, you should choose an elimination period that aligns with your emergency savings.

Disability Insurance & Employment

Companies may also take policies out on “key” employees, which is called “Key-Person Disability” insurance. This type of disability insurance aims to financially protect a company in the case that a key employee becomes disabled. If you are self-employed, you can buy disability insurance for yourself and can write it off as a business expense.

It’s especially important if you are self-employed to have this type of insurance, since your business likely would struggle to function in the event you are not able to work, and you need this as income replacement. It can also be very useful for one-income families or those with tight cash flows.

Short-Term Disability Insurance

Short-term disability coverage, which typically provides coverage for less than a year, is often packaged as an employee benefit, and offered through your workplace. If you have a company-paid plan, then the disability payments received will be taxable. Premiums are usually based on age, job title, health, elimination period desired, monthly benefit desired, and length of coverage.

Long-Term Care Insurance

Long-term disability insurance is usually purchased privately. The claim may last from one-to-three years, but when you purchase the policy, you have the option to choose multiple benefit durations. These can range from two years, all the way to the age of 70. This will affect the cost of your policy, but it’s something you can elect at the time you purchase it. Individual policies are a tax-free benefit if paid for by the insured.

Read our Free Personal Capital Insurance Guide

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Amin Dabit is the Vice President of Advisory Services at Personal Capital. Amin brings over a dozen years of experience in private wealth management and financial planning. Amin leads Personal Capital's advisory team to identify and establish strategies for reaching clients' financial goals by providing comprehensive, customized financial advice designed to improve their financial lives.
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