Securing Your Lifestyle With Disability Insurance

What’s your most important asset? Many would point to their homes, retirement accounts, investments, rental properties, or personal possessions. While these are all valuable, there’s something even more crucial that often gets overlooked — the source of everything you’ve been able to build.

Imagine having a machine that prints $175,000 every year. You use that money to cover your mortgage, car payments, student loans, entertainment, vacations—essentially, everything that makes up your lifestyle. And each year, it prints a bit more to keep up with inflation. Over the next 30 years, this machine would produce over $8.3 million. Pretty amazing, right? But that’s only true if the machine keeps running without a hitch.

Here’s the catch: that machine represents your ability to earn an income, which could be your greatest asset. But what happens if something goes wrong? An illness or injury could limit your ability to work or prevent you from working altogether. Without your income, how would you maintain your lifestyle, care for your family, or save for future goals? Do you have a backup plan to replace that lost income?

To ensure your financial security in case of a temporary or permanent disability, it’s essential to have a solid plan. Let’s explore how disability insurance can help protect your income and what to consider during the planning process.

Start planning

According to the Social Security Administration (SSA), more than one in four of today’s 20-year-olds will experience a disability lasting at least 90 days before they reach the age of 67. Most people only consider worst-case scenarios like spinal cord injuries or amputation. But things like cancer, back injuries, and heart attacks make up the bulk of disability claims. It’s important to understand these risks affect a broad group, and it’s vital to start planning now before hindsight tells you otherwise.

Generating cash flow

If your income is reduced or lost due to a disability, the first step is assessing alternative income sources, such as rental or a spouse’s earnings. Next, consider what your retirement or investment accounts can provide regarding income over a specific time frame.

Once you’ve totaled your income from these other sources, compare it to what you earned before. If there’s a gap between your original income and these sources, you must determine if additional planning is necessary. Do your living expenses exceed what these alternative sources can cover? If so, what steps can you take to address this shortfall?

Supplemental income options

When facing a disability, it’s important to know all the possible sources of supplemental income to help maintain your household’s financial stability. Below are several options to consider:

• Friends and family financial support: Friends and family may be able to provide temporary financial support in times of need. While this may not be a long-term solution, it can offer immediate relief during the early stages of disability. However, it’s important to approach this option with clear expectations to avoid straining relationships.
• Supplemental Security Income (SSI): SSI is a government program designed to provide financial assistance to individuals with limited income and resources who are also disabled, blind, or over 65. The program can help cover basic needs, but qualifying for SSI depends on income and asset limits, so it’s primarily aimed at those in significant financial need.
• Social Security Disability Insurance (SSDI): SSDI is available to those who have paid into the Social Security system through their work history and have a qualifying disability. Benefits are based on your average lifetime earnings before your disability. However, the application process can be lengthy, and benefits may take months to begin.
• Pension Disability Benefits: If you are covered by a pension plan, you may be eligible for disability benefits through the plan. These benefits vary depending on the terms of your specific pension, but they can provide a steady source of income if you cannot work due to a disability.
• Disability Insurance (Employer and Individual): Employer-sponsored disability insurance can provide a portion of your income if you’re unable to work due to illness or injury. In addition, if you have purchased individual disability insurance, this policy can also offer income replacement. Both short-term and long-term disability coverage should be evaluated based on your specific situation to ensure adequate protection.

Understanding these options can help you create a safety net and maintain financial security when dealing with a disability.

You can also obtain disability insurance individually. For example, a 35-year-old self-employed individual needing additional coverage may have to obtain disability insurance directly from an insurer. The process is usually subject to medical and financial underwriting.

Being objective

Your ability to earn an income may be your most valuable asset. If your resources are limited, and there is a need for additional disability planning, you have options. Work with a fee-only advisor to help you navigate the complexities of disability insurance.

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