To answer that question, you have to first ask yourself if you can afford not having it.
Lengthy unemployment due to an illness or injury can jeopardize your lifestyle and your long-term savings. The American Council of Life Insurers claims that one third of all Americans between the ages of 35 and 65 will become disabled for a period more than 90 days. The Social Security Administration recently said that almost 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67. Yes, that’s 25 percent of the youngest and fittest of our population! Hopefully they will have long-term disability income to provide them with paycheck protection, and cash to cover expenses such as mortgage payments, rent, or utilities. It can also pay for the additional training, licensing or other assistance needed to return to work.
Let’s look at this a little closer. If you’re not self-employed, chances are your employer provides long-term disability (LTD) insurance in your benefits package. Typical coverage would replace 60% of your salary 60 days after a disabling accident. Will that be enough to support your current lifestyle? Probably not, if you are the sole bread-winner and have a family. You may have to count on other resources like short-term emergency savings, investments, or help from your family.
Another important consideration is that because employer-provided LTD is paid out of pre-tax dollars, the LTD income replacement will be taxable. That will further shrink the actual value of the 60% income replacement. By contrast, the premiums on private insurance policies are paid out of your pocket with post-tax dollars and the benefits are typically tax free.
All private policies vary. For example some policies pay benefits only if you are unable to perform the major duties of your own occupation. Other policies pay benefits if you are unable to perform the duties of any occupation for which you are reasonably qualified by education, training, and experience. Some policies combine these features, providing “own occupation” coverage for one or two years and “any occupation” coverage after that. Some policies require total disability before beginning payments while other policies will cover partial disability as well. Some policies pay benefits if you become sick or injured and making you unable to earn a specific amount of income, such as 60–80 percent of your salary.
If you don’t want to take the risk of being one of the 33% who will be unable to bring in a paycheck for a period longer 90 days due to a disability, private LTD insurance may be for you. How do you decide? Fortunately, help is available. The American Council of Life Insurers (ACLI) has a detailed brochure available to help you in your decision-making process. You can find it here.
As the old adage goes, it makes sense to insure what you cannot afford.
Freedom Insurance Agency can help you with all your tough insurance decisions. Call for your free consultation today.
Freedom Insurance
(410) 795-2000
