Alexandra Ginieres
Chief Marketing Officer, MGIS
The ability to earn an income is what funds your lifestyle, your family, and ultimately, your future. Reliable income is the foundation of a sound financial plan; without it, financial consequences can be devastating and long-lasting. Luckily, we have the means to ensure a more stable future and promote financial wellness through income protection.
Disability income insurance helps you better prepare for the unexpected and meet life’s challenges. It replaces a portion of your income if you become too sick or injured to work. Mortgage, credit cards, student loans, college savings, retirement contributions – all financial responsibilities funded by our income.
The chances of disability are real – and so are the financial risks
Disability happens more often than you might think. The reality is that one in four 20-year-olds will experience a disability before retirement. That’s why having a solid financial plan in place that includes income protection is key.
While the chances of disability are real, so are the financial repercussions that come along with a loss of income. According to the Fed’s 2022 Economic Well-Being of U.S. Households survey, 37% of Americans lack enough money to cover a $400 emergency expense, up from 32% in 2021. With the average long-term disability lasting almost three years, savings may not be enough and a lack of income protection can put you at risk for debt or even worse, bankruptcy. Proper planning is critical to avoid these financial consequences.
Moreover, as of 2022, 58% of debts recorded in collections were for a medical bill, according to the Consumer Financial Protection Bureau. All the more reason to ensure that the right coverage is in place to protect your livelihood and your future.
Your most valuable asset over a lifetime
Most of us think of income in terms of a monthly paycheck. But your income is your most valuable asset, and when viewed over an entire working life, the cumulative amount is remarkable. Consider this: an individual with an annual income at age 30 of $100,000 will have total cumulative earnings of $6,046,208.18 (assuming a 3% annual increase and retirement at age 70). We must think beyond the monthly amount and look well into the future to ensure proper planning.
While many of us focus on the cost of disability insurance (it’s not always inexpensive) and that “it won’t happen to me,” the reality is that the insurance premium is a small price to pay to ensure protection of those lifetime earnings. Isn’t that worth the investment?
In fact, loss of income due to a disability goes beyond just the inability to cover basic needs and expenses. Many of us contribute to retirement plans and build college savings for our children. For those without proper income protection in place, many will tap into long-term vehicles such as savings or investments (401k or IRAs) intended for future needs. Also, when you become disabled and can no longer work, your retirement contributions will stop, and your investment accounts will no longer grow. Your long-term goals are too valuable to risk in the event of a disability.
The solution: holistic coverage across group and individual benefits
So how do we invest in our future? Most employers offer group disability, which is a great foundation for protection. However, especially for high earners, this type of coverage may not be enough and could leave an income gap. Group long-term disability generally covers about 60 percent of your income – again, a solid foundation – but additional coverage may be needed in order to better meet financial obligations and debts.
The solution to manage this income gap is individual disability insurance. By combining a group policy with additional individual protection, you create a more robust income protection strategy that allows you access to a larger benefit amount to cover everyday expenses. The key is to make sure you are tapping into all options, both employer-sponsored and those available individually from an insurance carrier.
Your future self is counting on you
When looking to strengthen or build your income protection strategy, work with an experienced financial professional or insurance broker to help build a plan that will work best for you and your family. A financial professional will assess your financial goals, analyze existing coverage amounts, and help you build a plan that considers future needs and long-term goals. The idea is to find a combination of group and individual coverage that will help you maintain your lifestyle in the event of a disability and allow you to focus on your recovery (not your finances).
Simply put, disability insurance is worth the investment – for you, your family, and your future.
To learn more about income protection, visit RealityCheckup.info, which is part of a CDA consumer outreach program to help working adults understand the importance of having alternate sources of income for times when they cannot work due to illness, injury, or pregnancy.
