No one wants to think about the possibility of suffering a disability or disabling condition. It’s natural to think ‘it won’t happen to me,’ but the truth is that conditions limiting the ability to work are more common than you’d think.
According to the Council for Disability Awareness, more than one-quarter of today’s 20-year-olds will miss at least a year of work before they reach retirement, due to a disabling condition. Overall, nearly six percent of Americans will experience a short-term disability in any given average year.
So, the question then becomes what happens if you do have a disability or become injured? Do you have disability to ensure your family’s continued financial security? Today we’re going to delve into why term life insurance and disability insurance are both essential to have at different times in your life. This is true not only for those employed in hazardous fields but for all working families.
Financial security no matter what
There’s no denying it: disability insurance and life insurance can each be pricey on their own. Having both? The cost poses a real financial challenge to many families and so, therefore, it might seem as though they’re not worth the cost. However, it’s important to consider the worst case scenario so you can plan accordingly.
Life insurance and disability insurance help hedge against hardship if should you’re unable to work, or in the event of your death. Insurance for both might be a short-term burden to your budget, but together they help ensure continued financial stability in the long term. If you or your spouse becomes unable to work, either because of disability or premature death, your insurance will allow your family to continue to meet their financial obligations.
The old rule of thumb is to have three to six months savings in case of an emergency. This, in theory, would cover expenses for the duration of a short-term injury or gap in employment. However, if you have a persistent condition that impacts your ability to work, even those savings might not cover your expenses. That’s where disability insurance comes in, to continue to pay a portion of your salary while you are unable to work.
Additionally, a popular perception persists that disability is only the result of accidents and mishaps. However, the truth is that many chronic, non-life-threatening conditions can keep you off your feet. Chronic back pain, vertigo, and chronic bronchitis are just a few examples of disabilities that could greatly set you back.
It’s important to note that disability insurance doesn’t cover the entirety of your pay, but rather a percentage, typically 60%. Also, disability insurance benefits don’t begin right away. Oftentimes there’s a specified waiting period before the policy begins paying out, which you should be aware of when signing up for the insurance. Lastly, short-term and long-term disability insurance policies are both available at different costs; which you choose depends on your age and health.
Term life Insurance
Unlike disability insurance, life insurance pays your designated beneficiaries in the event of your premature death. There are two main types of life insurance: term life insurance, and whole-life coverage.
Term life insurance is the type we’re discussing today. Term life insurance provides life insurance coverage for a specified period of time, and is intended to protect your dependents and loved ones in case you die prematurely. With term life insurance, if you die within the specified period of time, your beneficiaries receive a policy payout.
Common term life insurance policies last for 10, 20, or 30 year, and are meant to help ease financial stress in the years after a premature death. Term life insurance can be especially important to consider because, in the event you die prematurely, your family will continue to need basic needs covered.
Based on your family size and the age of your children, you should consider term life insurance to cover the period of time until your children reach adulthood. Ideally you might time your term life insurance to expire once your children or dependents are done with college and able to provide for themselves.
Term insurance, bought early enough, is much more affordable than permanent insurance, though the cost varies depending on the dollar amount of the plan payout. However, premiums are generally low and offer good coverage at a low cost.
Which to prioritize?
The truth is that it’s complicated. Because each policy functions differently, both are important for protecting your family’s financial security and future for the coming years. However, we also recognize you might need to prioritize with your budget, especially early on in your career.
Prioritizing term life insurance early on might make more sense for young couples, especially those with young children. However, disability is the more likely scenario while you’re young, and income replacement becomes more important as your financial commitments and expenses go up, such as purchasing a home, or having another child. Compounding this complexity is that you can sometimes get group disability or term insurance through your employer but portability varies or can be costly.
Consult an expert
Planning for the future can be daunting, and planning for an injury or death is never fun. However, it’s essential to think about these possibilities before you’re in a position where you or your family needs them.
An important step to take in protecting your family’s future is speaking with a skilled financial advisor. Drop us a line or call, and we’ll help you work with an insurance agent to prepare for whatever the future might bring.