The Hidden Value of Social Security Disability Insurance: Why It’s Important During Benefits Enrollment
The ability to earn an income is what funds your life, and it is the foundation of your financial well-being. Disability income insurance protects your paycheck by replacing a portion of your income if you become too sick or injured to work. The reality is that one in four 20-year-olds will experience a disability before retirement – that’s why having a solid financial plan in place with income protection during your working years is critical.
As your career grows, your income generally grows as well. In many cases, your family responsibilities grow, and as you age, you pass through various life events that impact your priorities and perhaps pose new challenges. That means that your needs will change, and your disability coverage needs to support those changes. Each phase of your life will require a different type of protection, so make sure your disability coverage is aligned with this growth.
Your most valuable asset over a lifetime
Your income is your most valuable asset, and the cumulative amount over a lifetime can be staggering. Consider this: an individual with an annual income at age 30 of $100,000 will have total cumulative earnings of $6,046,208.18 (assuming a 3% annual increase and retirement at age 70). Proper financial planning includes a future-oriented approach that takes into consideration your needs at each phase of life.
So how do we invest in our future? Most employers offer group disability insurance, which is a great foundation for protection. However, especially for high earners (like doctors), this type of coverage may not be enough and could leave an income gap. Group long-term disability insurance generally covers about 60 percent of your income –a solid foundation – but additional coverage may be needed in order to better meet financial obligations.
By combining a group policy with additional individual protection, you create a more robust income protection strategy that allows you access to a larger benefit amount to cover everyday expenses. The key is to purchase when you are young and healthy in order to lock in lower premiums. When you’re young you may not think you will need disability insurance, but the chances of disability are real and require a thoughtful protection strategy that will last into the future. Keep in mind that the risk of disability rises with age.
Optional benefits that support your life stages
High-quality disability insurance policies (both group and individual) typically offer valuable optional benefits that help protect you by filling in important gaps. Understanding how these benefits can help you through various life stages is important. Here are just a few:
Student Loan Protection
Student loan debt is a significant burden for many workers early in their careers, and a disability can compound this challenge. Student loan repayment benefits are tailored to address this concern. It allows disabled policyholders to retain financial stability by contributing towards their student loan payments.
Retirement Protection
Retirement contribution benefits are a forward-thinking disability insurance optional benefit that supports your long-term financial health. Claimants are typically unable to make retirement account contributions due to lost income; this benefit steps in to continue their retirement contributions and to ensure their nest egg continues to grow.
This benefit is particularly helpful for white-collar and white-coat workers, including attorneys, accountants, and doctors. With the high costs of education and specialized training, it’s no wonder that many have concerns about their financial stability and retirement plans.
Cost of Living Adjustment (COLA)
Inflation can erode the purchasing power of disability benefits over time, leaving you struggling to cover their living expenses. A COLA benefit is specifically designed to combat this issue by periodically adjusting the disability payouts to disabled participants to keep up with inflation rates. This additional benefit can make a significant difference in maintaining a standard of living during a long-term disability.
Automatic Benefit Increase
As you progress through your career, most likely your income will increase. It’s important that disability coverage keeps pace with these increases to ensure that there are no significant income gaps. One way to do this is through an automatic benefit increase rider through your individual disability insurance policy. It’s important to evaluate your disability coverage yearly and make sure your coverage aligns appropriately with any changes in income. There is usually no cost associated with adding this rider to your policy, but you would pay a premium for the additional coverage.
At any age, you can’t replace peace of mind
Make sure to work with an experienced financial professional or insurance broker to help build a protection plan that will work best for you and your family. This includes disability coverage that grows with you and provides protection for various life phases. It’s a good idea to do an annual review with your financial professional to review existing coverages and discuss any life changes that require an adjustment to your financial strategy. A financial professional can assess your goals, analyze existing policies, and help you build a plan. Your future self will thank you.
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