Why buy disability insurance?

New York - If you don't have dependents, you probably don't need life insurance. The other side of that coin, however, is that if you do have dependents, you do need life insurance to protect them in case anything happens to you. But almost as important, you need disability insurance if you become ill or injured.

According to the Insurance Information Institute, 43% of all people now aged 40 will suffer some long-term disability by age 65. Insuring yourself against such an event guarantees a future income of about 60% of your salary at the time you take out the policy if you use an employer-subsidised plan, or up to 80% if you buy a costlier private disability income policy.

Here, with research from the Motley Fool, are some of the advantages of going with the private policy:

Tax break

If you become disabled, the benefits you receive will be tax-free, as long as you paid the insurance premiums with after-tax money. (Benefits from employer-paid policies are subject to income tax.)

Not tied to your job

The policy won't be tied to your current job. This is key for people with entrepreneurial ambitions, since finding affordable disability insurance once you become self-employed can be very difficult.

Specialist protection

If you are a highly skilled, highly paid specialist - say a surgeon or a NASA scientist - you would be wise to seek disability insurance that locks in your income level. This more expensive class of policies is called own-occupation coverage as opposed to the more common and less expensive any-occupation option.

No cancelatoin of policy

Be sure the policy cannot be canceled. This guarantees that policy premiums cannot be altered as long as you pay them on time. Avoid "guaranteed renewable" and "return of premium" policies because they don't lock in premium costs.

No limited benefit term

Don't buy an accident-only policy or a policy with a limited benefit term (five or 10 years are common). Such policies are cheaper, but they do not cover the whole of your working life (that is, until age 65).

Protection from inflation

If you can afford it, a cost-of-living rider will protect your future benefits from the inflation. You might also want to increase your protected income level as your career advances.

Waiting period

The waiting period, before payments kick in, is akin to a car-insurance deductible. The more emergency savings you have, the longer you can wait for disability income and the lower your premiums will be.

Keep your eyes open

Watch for clauses that exclude pre-existing medical conditions or risky hobbies.

Go independent

And remember: buying long-term disability insurance has so many potential pitfalls that if you do decide to use a private policy, be safe and work with an independent insurance agent.


source:http://www.fin24.co.za/articles/default/display_article.aspx?ArticleId=1518-1786_2246374