Your ability to earn an income forms the foundation of everything you do financially. So why doesn’t anyone talk about how you can insure your income?
How can you insure your income?
Income Protection is a better way to describe a type of coverage you’ve probably heard of already: Disability Insurance.
The problem with the term disability insurance is that if often automatically triggers an image in your mind:
If you had thought disability insurance would only protect you from being permanently disabled or paralyzed, it’s through no fault of your own.
However, if you were to think of disability insurance instead as Income Protection, how would that change your perception?
Income Protection is a type of insurance policy that will pay you a considerable portion of your lost income in the event you become sick and can’t work for an extended period of time.
It’s not just for accidents and injuries – in fact – only about 10% of all disability insurance claims happen because of injuries. Most claims happen when you get sick.
An emergency fund will usually keep you afloat for 3-6 months, but what happens if it takes any longer for you to recover? What happens if when you’re back to work, you don’t make the same amount of money that you did before?
The reason no one talks about it
It’s hard to have a conversation about getting a serious illness. So much so that most people don’t think about these issues for themselves. And if you can’t address it with yourself, how can you confidently bring it up with someone else?
Not only is the subject matter difficult, there’s not much pressure to get the coverage – especially when you compare it to other types of insurance. Most states require you to have car insurance. If you have a mortgage, you’re required to have homeowners insurance. Everyone recognizes the need for life insurance because the only certainty in life is death.
Getting seriously sick is the thing where “it’ll never happen to me” is something we can say and actually be right most of the time. The problem is, even if there is a relatively small change of being wrong, being wrong can destroy everything you’ve worked for financially.
But I have disability coverage through my work
Do you? How closely did you look at your plan?
Unfortunately, Disability Insurance isn’t a box you can simply check off. Here are some questions to ask of your plan:
- What is the cap on monthly benefits?
(there is always a cap – the most common one is $5,000/month before taxes)
- Are the benefits taxable?
(if you’re not paying the premium, benefits are subject to tax)
- How long will the benefits last?
(many are capped at two years)
- Will it still pay you if you could get another job?
Coverage through your group plan is definitely better than nothing. But far too often, the coverage falls far short of where you would really need it to be.
In many cases, you’ll be lucky to get reimbursed for 40% of your actual income.
The good news is that you can supplement a group plan with a customized individual policy. And because you already have coverage in place, it’s often less expensive because you’re not funding all of it yourself.
How do you actually insure your income?
If you have life insurance, the process is similar to obtaining that with one added element: financial underwriting.
In short, here’s what the process looks like:
- Current Coverage Review: If you have coverage through your employer: Get a copy of your plan. You can usually talk to HR about this.
- Income Verification: Find your most recent tax returns (you’ll likely need the last two years) and a couple of recent pay stubs.
- Health Information: If you have existing health conditions, there may be exclusions. They’ll need to be disclosed upfront. We’ll also need to review information such as height, weight, cholesterol, blood pressure, and any medications you’re currently taking.
- Quoting: Depending on your occupation and everything above, we’ll match you up with the right carrier.
- Application & Exam: An application can be completed and submitted electronically and an in person exam may be required (for height, weight, bloodwork and urinalysis).
- Peace of Mind: When your coverage is in place, you’ll know that should you get sick, you and your family will be able to maintain your current lifestyle.
- Maintenance: Changes to your health may qualify you for better rating. Changes to your income should be accounted for to increase your coverage.
When you’re ready to get started – or if you just want to have a conversation – you can start here: