Every married couple must prioritize protecting their way of life. 1 in 4 people will become disabled before reaching age 67, yet only 1 in 3 of the private sector workforce has long-term disability insurance. Long-term disability insurance provided our family with the replacement income needed to continue to live our lives.
Disability insurance, often overshadowed by more conventional insurance policies, is the unsung hero that can safeguard your financial stability when unforeseen circumstances strike.
Simply put, by protecting your paycheck with disability insurance, you are protecting your family. There are numerous other compelling reasons why disability insurance deserves your attention and consideration.
Protection Against the Unforeseen
Life is unpredictable. Accidents, illnesses, or disabling conditions can occur suddenly, leaving you unable to work and earn an income. Disability insurance acts as a safety net, providing you with financial support to cover your expenses and maintain your standard of living during such challenging times.
Safeguarding Your Income
Your ability to earn an income is your most valuable asset. Disability insurance ensures that if you're unable to work due to a covered disability, you'll still receive a portion of your income. This financial lifeline can help you meet your financial obligations, such as mortgage payments, utility bills, and other living expenses, without depleting your savings or going into debt.
Peace of Mind for You and Your Loved Ones
Worrying about financial security can add immense stress to an already difficult situation. Disability insurance offers peace of mind, knowing that you and your loved ones are protected financially, regardless of what the future may hold. Instead of dwelling on the "what ifs," you can focus on your recovery and well-being, knowing that your financial needs are addressed.
Bridge the Gap Between Other Benefits
While you may have some form of government or employer-sponsored disability benefits, they may not provide sufficient coverage or come with limitations. Disability insurance fills the gaps left by these benefits, ensuring that you have comprehensive coverage tailored to your specific needs and circumstances.
Long-Term Financial Planning
Investing in disability insurance is not just about immediate protection; it's also a smart long-term financial decision. By securing your income against the risk of disability, you're fortifying your financial foundation and safeguarding your future goals and aspirations.
Disability Insurance and Taxes
Are disability insurance premiums taxed?
Whether or not disability insurance premiums are taxed depends on who pays them. If an individual purchases disability insurance with after-tax dollars, the premiums are not taxed.
If the premiums are paid for with pre-tax dollars through an employer-sponsored plan, they are typically considered taxable income when received as benefits.Â
If an employer pays for a portion of the disability insurance premium, the portion paid by the employer is generally considered taxable income to the employee.
Are disability insurance benefits taxed?
Depending on how the premiums for the insurance were paid, disability insurance benefits may or may not be taxed.Â
Short Term Disability Insurance vs. Long Term Disability Insurance
Disability Insurance Checklist for Married Couples
Evaluate your emergency savings
The more saved for emergencies the less likely short term disability insurance is necessary, and the longer the elimination period can be for long term disability insurance. With that said, experts recommend 3-6 months of expenses set aside for an emergency.
Understand how much disability insurance you each have through work
Employer-sponsored disability insurance typically covers 40%-60% of your income. The benefit will be lost if you lose your job. Consider an individual disability insurance policy to cover a gap in emergency savings or employer-sponsored disability insurance. Consult the Social Security Administration for information about collecting SSDI and estimating your benefits.
Myth buster: Workers comp is not disability insurance
Workers’ compensation is a government-mandated program that provides benefits to workers who become injured or ill on the job or as a result of the job.Â
Evaluate your budget
Make it affordable to protect your paycheck. Here are a few strategies to reduce the monthly cost of disability insurance:
Increase the elimination period length. The elimination period length is the waiting period before you can receive benefits after suffering an injury or illness. Think of it as a deductible paid with time, not money. The longer the elimination period, the less costly the premium.
Use savings and your spouse's income for short term disability needs. Experts believe that it’s more important to have a policy that will protect you for a significant period of time. And this was the case with our family.
Calculate the coverage you each need. The Disability Insurance Needs Calculator by Life Happens estimates the income you would need to maintain your current standard of living should you become disabled and unable to work.
Related: Review our Budgeting & Taxes pages, where couples gather ideas to create a spending plan and better understand the basics of taxes.
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