Disability Insurance

Disability Insurance

Disability insurance may be the most important kind of insurance to have. Indeed, during the peak-earning years of your career, the possibility of suffering a long-term disability is considerably greater than the possibility of death. The Society of Actuaries says that a 35-year-old is three times likelier to become disabled for three months before reaching 65 than he is to die younger than 65.

How much you need?

You can figure out how much disabilit insurance you need in the same way that you calculated your life insurance needs. Take your annual expenses and subtract your familyès annual income without your salary. Buy as much disability insurance up to that level as you can. Generally, insurers will sell you only enough insurance to replace 60 percent of your income, so that, they say, you will have an incentive to return to work.

What your options are?

The cost of disability income insurance depends on factors like your age, your profession, the amount of time you’ve worked or owned your business, whether you smoke and, more recently, whether you’re a man or a woman. Since women file for disability benefits more often than men, many insurance companies have recently begun to raise women’s rates, while at the same time lowering the rates for men.

Disability is always sad. Photo by Elena

What to watch out for?

Look for a policy that can’t be canceled and has no increase in premium until you are 65. Get a cost-of-living adjustment provision, so that your benefits increase once a year for as long as you are disabled. You should also insist on a provision allowing you to boost your coverage as your income increases.

Pay particular attention to the definition of disability. Some insurers say you qualify for benefits if you are unable to do your job. Residual or partial disability benefits can be tacked on to provide a percentage of the amount due.

Fact File: How long we live?

The average American born in 1990 can expect to live more than 25 years longer than his ancestor born in 1900.

Life expectancy in years

Year born Male Female

1900          46.3     48.3

1910           48.4     51.8

1920           53.6     54.6

1930           58.1      61.6

1940           60.8     65.2

1950            65.6     71.1

1960            66.5     73.1

1970            67.1      74.7

1980            70.0     77.4

1990             71.8     78.8

Source: Life Insurance Fact Book, American Council of Life Insurance.