In this episode of the Finance Flash Go podcast, we’ll chat about disability insurance.
Disability insurance can be tricky.
Why is it tricky?
Ok, disability insurance. This is insurance that you pay so that if you become disabled and cannot work anymore, the policy will pay you enough money such that you can keep living your life. It is much more expensive than life insurance but is completely necessary. Disability is a financial catastrophe. You need to be protected against it.
But how much disability insurance do you need? To find this out, calculate your monthly expense, minus tax because the policy payout is tax free generally. You need your policy to be able to cover at least this amount of monthly payment. Once you know how much insurance you need, decide on the delay after disability before the insurance policy is paid to you. You should have an emergency fund of 3-6 months expenses so you can reduce your premium by choosing a longer delay period.
That’s not all though!
Next, you need to figure out what terms and riders you want on the policy. First, your policy NEEDS to be own-occupation. This means that if you are a surgeon and get hurt and can’t perform the duties of your old job anymore, you get paid. You still get paid even if you are able to work as an intensivist, let’s say. This is important.
You also ideally will get a policy that is non-cancelable. This means that as long as you pay your premium, they cannot cancel your policy or raise your rates. Less ideal options are guaranteed renewable (they have to renew the policy but can raise the rates if they do so for all customers in your demographic category) and conditionally renewable (they can cancel the policy anytime they like).
What about the riders?
In terms of riders, you will generally want to include a:
– Cost of living adjustment rider to keep your policy up with inflation
– Partial disability rider to cover some of your monthly costs if you become disabled, can work, but cannot make the same amount of money as before your disability
– A future increase option that allows you to increase the amount of coverage in the future for a commensurate increase in premium price
Similar to life insurance, to apply, you will need your basic demographic information, a list of all medications, as well as a list of all doctors you currently see. Have this information ready to expediate the process. Once you apply, you will need to supply some information and generally take a physical. Once this is done, they will grant you the policy.
Also, I will note that some jobs offer group disability insurance. This is usually insurance that your employer has negotiated with a company that is not individualized to you. Some can be good, some not so good. You can supplement group with individual disability insurance. TSpeak with your HR person to get details before speaking with a broker to get the most objective information.
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