In the first half of your working career, your future earning potential and ability to save for retirement can be one of your family’s greatest resources. But if you become too sick or injured and unable to work, your financial life plan can veer off course. Nearly one in three people will be disabled for more than 90 days over the course of their working career. Long-Term Disability can be one the biggest risks in derailing your financial life plan.
Disability insurance is often offered through an employer at little to no cost and usually will cover 50-65% of your income. If you are self-employed or your employer does not offer enough coverage, you can purchase additional private insurance. A best practice is to ensure at least 50-65% of your income is covered.
Benefits through an employer may be segmented into short-term benefits, which cover a period less than 90 days, and long-term benefits, which cover periods over 90 days and can go until the beneficiary is age 65. Both benefit types will have a “waiting period” in which you are ineligible to file a claim. For short-term disability, you typically must wait anywhere from 7-30 days and for long-term disability, the waiting period is typically 90 days. During the waiting period, your disability insurance policy will not pay benefits, and you will need to cover the loss of income from savings (e.g., emergency reserve).
When evaluating your benefits, you will want to determine if benefits will be paid pre-tax or post-tax. If you personally pay the premium associated with the disability insurance policy, you will receive any future payment of benefit post-tax. If your employer offers the disability insurance policy and covers the premium on your behalf, you will receive any future payment of benefit pre-tax (meaning you’d owe ordinary income tax on the disability insurance policy payments). Some employers will allow you to elect to have premiums included in your wages where you essentially are paying for the policy. We recommend exploring this option with your employer to save taxes on any future insurance policy benefit received.
As you continue to build wealth and work towards achieving goals for you and your family, mitigating risk which could derail this plan or put you and your loved ones in a tough spot can be important. If you have questions or would like to learn more about your disability insurance, please reach out to your JNBA Advisory Team to learn more.
JNBA is neither an insurance agent nor an accountant and no portion of the above should be construed as insurance or accounting advice. All insurance and accounting issues should be addressed with the insurance and accounting professional of your choosing. JNBA nor its employees sell insurance products.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
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