Advice offered by Marc Hebert, president of The Harbor Group Inc., a registered investment adviser.
If illness or an accident knocked you off your feet, how would you cope with the financial consequences? How would becoming disabled affect your finances?
Even without considering raises a person with an annual income of $50,000 who works for 40 years is projected to make $2 million in future earnings. Yet many Americans do not insure their most valuable asset -- precisely the ability to work and generate income. Without a steady income many would have no way to maintain their standard of living or pay bills. Adequate disability insurance benefits can help a person cope with the financial impact of becoming disabled.
Types of Insurance
Generally there are two main forms of disability income insurance to consider: employer-sponsored policies and private insurance policies. Employer-sponsored policies (called "group" policies) are relatively inexpensive to purchase but usually the coverage ends once a person leaves the company.
Private insurance policies are generally paid for by individuals and provide coverage when group policies don't apply or don't provide enough income. A private policy is usually more expensive than a group policy. However, a private policy may provide much greater benefits over time.
Evaluate and Compare Policies
If you have coverage, just how adequate is it? Policies can be evaluated and compared according to the following four criteria:
(1) How each policy defines disability
(2) The base and optional features each policy offers
(3) The cost of each policy
(4) The insurers' financial strength and claims practices
It is best to do some research here in order to get a clear understanding of the coverage.
Replacement and Conservation Considerations
If you need to change or update your disability insurance coverage, you have the following alternatives:
(1) keeping the existing policy
(2) replacing it
(3) keeping the existing policy but buying additional coverage
Don't rush into this decision. If you want to make major changes to your disability program, consider the consequences carefully before acting. Changing policies may not be a wise move, since you could find yourself having to undergo the underwriting process all over again. Don’t cancel a policy before having replacement coverage in place.