You insure your home, car and health against serious harm. You even buy life insurance to cover your family if you die. But what about protecting the income that you depend on every day to pay your bills and fund retirement and college savings?

The possibility that a serious illness or injury could dampen your earnings is unfortunately real. But you can prepare yourself with long-term disability income insurance, which recoups some of your income should you become disabled and unable to work.

Supplemental Income Source

Long-term disability income insurance protects income during the most important part of one’s long-term financial plan: The working years. Although no disability benefit will replace 100% of income, it is typical to expect to receive 60% to 70% of your regular pay.

It is important to be sure you know how your policy defines “disability.” For example, “own-occupation” coverage pays if you are unable to perform the work you were doing. In contrast, an “any-occupation” policy, which tends to be less expensive, pays if you are unable to do any work considered suitable for your education and experience levels.

In other words, any-occupation coverage could conceivably require you to change careers — a potentially undesirable situation to consider when deciding which type of coverage to obtain.

Two Types of Coverage

There are two types of long-term disability coverage:

1. Group Coverage — This disability policy may be offered by your employer or professional association. Affordability is a key advantage of a group coverage plan, but you need to review the plan details carefully because lower-cost plans typically provide fewer benefits, and may define disability more narrowly.

   Another advantage of group plans is that you will have an easier time enrolling. Your age, medical history, gender and other underwriting factors are unlikely to affect your eligibility. However, you will typically lose coverage if you leave the company or if the company cancels its policy. To increase your protection, find out whether your employer offers enhanced coverage options (which may be available at a reasonable cost) or seek an individual policy to supplement your benefits. The plan may be set up to tax you on premiums paid but then provide a tax-free benefit, or it may have no up-front tax cost but provide a taxable benefit.

2. Individual Coverage — An individual policy covers you alone and stays with you regardless of job changes. This plan makes sense if you do not have the option of joining a group policy or if you need additional coverage.

   Individual plans are more expensive. But, with the higher costs, you get more choice in customizing the coverage for your specific needs — for example, selecting the amount of monthly income you would receive, the duration of benefits and the definition of disability. And, because you are paying the premiums yourself, the income you receive is income-tax-free.

   Depending on underwriting decisions, you could have difficulty getting approved. Similar to life insurance, individual long-term disability policies typically demand higher premiums for those considered older with more risk factors.

   Starting with your group plan and then layering coverage with enhanced options or an individual policy is most likely your best strategy for avoiding a potential income shortfall. If a group plan is unavailable, work with your financial advisor to find the right balance of affordability and benefits in an individual plan.

It is All about You

Whether you are married and supporting a family or single with no dependents, your earnings are critical to ensuring your financial stability both now and in the future. If losing the income from your work means you would have trouble paying your monthly bills, long-term disability income insurance is worth considering. Your financial advisor can help you assess your financial preparedness in the event of a lengthy disability and whether this coverage may affordably provide added security for your future.

For additional questions, contact Amanda Cenzer at 312.670.7444.  Visit orba.com to read more about our Wealth Management Group.