You are
more likely to need disability insurance than life insurance during your
working years -- at age 40, you have a 21 percent chance of becoming disabled
for 90 or more days before age 65, but only a 14 percent chance of dying.
Unfortunately, comparison shopping for coverage is tricky at best because
of lack of uniformity in the market. The complicated nature of disability
offerings makes it doubly important to find a good
agent, one that specializes in disability.
A
couple of firms stand out in this area. Northwestern Mutual is a strong company
that only sells through its own agents. Lankford recommends Guardian as another
good high-end insurer. Always check for complaint records with your state
insurance department when shopping for disability insurers.
According
to Lankford's book, for a policy paying $3,000 a month for life, 40-year-old men
can expect to pay $1,500 to $2,500 per year; for women of the same age, premiums
run $2,500 to $3,500 per year. As you can see, coverage can more than pay for
itself in the first month alone.
It's best to
talk with an expert and maybe a financial planner when determining coverage needs.
Disability offerings differ markedly from company to company. Some policies, known
as "own-occupation coverage," pay out if you can't perform a particular job but
are able to do another job. Other policies only pay out if you are completely
unable to work. Still others protect against loss of income due to disability,
but allow you to take a part-time job.
Match your
disability coverage to your profession. If your job is physical and highly skilled
-- for example, if you're a surgeon -- you may want coverage that pays out if
you can't do your specific job.
Disability coverage is often offered through your
work, but benefits are taxable when the employer pays the premiums.
Because disability insurance generally pays out only 60 to 65 percent
of your salary, the after-tax payout would reduce your income further.
It may make sense to supplement with private insurance. You can cover
up to 80 percent of your income if you supplement, it is portable between
jobs and premiums usually don't increase over time.
Lankford
suggests checking out the following features:
Cost
of Living Adjustment (COLA) increases your benefits to keep up
with inflation. Skipping this option could save you 25 percent in premium costs,
but may leave you with too little coverage.
Noncancelable
and guaranteed renewable means they can't cancel your policy or
raise rates unless a premium change is made for an entire class of policyholders.
Residual
benefits pay even if you drop to part-time work, so you don't
need to be completely disabled in order to receive benefits.
Elimination
period is the amount of time that must elapse before your benefits
kick in. The longer you can go before taking benefits, the more you can save on
premiums.
Riskier lifestyles pay more for disability
insurance, so if you give up skydiving or smoking, let your insurer know.
