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Disability Insurance:
What you need to know

Disability Insurance (also referred to as Disability Income Insurance), is a common policy that insures the holder against illness or debilitating injuries that would render him/her too disabled to work and make a viable income. Think of it as Paycheck protection! It's a way of hedging the risk of becoming injured and being unable to remain financially stable. Although people in all walks of life take out disability insurance, it is more common with those that work in dangerous jobs and professions, as they are more likely to become injured.

Individual disability insurance is truly a basic concept. It is an insurance product designed to replace anywhere from 45 to 60% of your gross income on a tax-free basis should an injury or illness prevent you from earning an income in your occupation. Each disability insurance policy from every insurance company is very different; this is not a product for which you would necessarily shop for the most competitive rate. Purchasing the least expensive or most affordable disability insurance policy on the market usually doesn't provide a good return on your investment. The odds of getting paid a monthly benefit under an inexpensive or perhaps streamlined contract may be significantly lower than receiving benefits from a quality contract.

The definitions of disability and the verbiage within the disability policy are the most critical pieces to examine. Beyond the verbiage, one needs to be very cognizant of the way the policy is constructed with regard to the benefit periods, elimination periods, benefit amounts, guarantees and various optional riders.

A good individual plan will guarantee the rate and definitions in the plan. There are many more provisions in a strong individual plan that cannot be obtained through any group plan.

If becoming disabled seems unlikely, the odds may surprise you. Roughly 3 in 10 Americans will suffer a disability lasting three months or longer before the age of 65 and nearly 1 in 5 Americans will be disabled for one year or more during their working years.

For many, a sudden interruption of income could have serious financial consequences. Most of us have some kind of personal debt, typically a mortgage or credit card bills. Would you be able to maintain your current standard of living if you were too ill or injured to work for an extended length of time? What would happen to you, your family, your home and/or business if you didn't bring home a paycheck for 6 to 12 months? Half of all home foreclosures in the United States result from disability as do an alarming number of personal bankruptcies.

The other thing to keep in mind is that an accident or illness that keeps you out of work for a period of time can be very costly. That's because people who become disabled not only need to continue providing for loved ones, but for themselves as well. A disabling injury or illness could lead to medical bills, modifications to your home or car, or other unforeseen needs that can be quite expensive. For all of these reasons, almost anyone who works -- whether they're single, married, with children or without -- should consider disability insurance. Protection that is priceless.