How Much Disability Insurance Do You Really Need?

If you suffered a serious injury or lengthy illness, how would you pay your bills? Disability insurance is intended to cover your loss of income when the unexpected happens. Learn more about this coverage and how much you may need. 

BASICS OF DISABILITY INSURANCE 

Unfortunately, many of us may suffer an injury or illness that keeps us from working. More than 1 in 4 of today’s 20-year-olds will become disabled before turning 67, according to the Social Security Administration, while two-thirds (67%) of private-sector workers have no long-term disability insurance. (1) That means you shouldn’t overlook this insurance option when considering all your protection options. 

Disability insurance comes in both short-term and long-term coverage options. Short term protects you against loss of income for a few months to a year, typically, and may pay up to 70% of your income before the industry. Many employers offer low-cost or free short-term disability insurance as part of the benefits plan. Because the time this coverage will cover is limited, many experts recommend saving money in an emergency fund that can be used to cover any loss of income from illness or injury. 

Long-term disability will cover you for as long as the illness lasts, or after a set number of years, and generally only covers up to 50% of your lost income.

HOW MUCH COVERAGE IS ENOUGH?

Before you consider your disability insurance needs, keep in mind that Social Security pays out benefits to workers who become disabled and who qualify for benefits. However, that coverage currently averages just $1,259 a month, which is probably too little to cover your expenses. (2)

When considering how much coverage you need, first calculate how much you need each month to pay the bills. If you were to lose your income, how much in insurance would you need to keep up with expenses? Next, how much do you have in savings? If you have significant assets you can tap in case of illness or disability, you may be able to lower your monthly premium by choosing a higher “elimination period,” which is how long you wait before the policy pays out. 

If your employer does offer disability insurance, check how much the benefit is and how long it will last. You may be able to purchase extra insurance through your employer to meet your needs, sometimes at a discount. An experienced financial advisor can also walk you through your options and find a policy that works for your needs. 

Small business owners should consider extra coverage, especially if they do physical work or are the sole employee generating income for the company.  

Note that your age, health considerations (such as if you smoke), and the level of income you’re looking to replace will all factor into your monthly premiums. Also, workers in riskier jobs can expect to pay more.   

DISABILITY INSURANCE AND YOUR FINANCIAL PLAN 

The decision about how much disability insurance you need should be made in the context of your overall financial plan. Let’s sit down and discuss your goals and dreams, and together we’ll build a plan to get you there. Contact us at HBA Wealth at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.

ABOUT HAYDEL, BIEL & ASSOCIATES

Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.

The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Haydel Biel & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by Haydel Biel & Associates or performance returns of any Haydel Biel & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Haydel Biel & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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(1) https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

(2) https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf