Creditor Protection in Retirement Planning

You likely have life insurance. You know that your family will be okay should your life end prematurely. But what if you become disabled? There’s a good chance that you don’t have sufficient resources or insurance to replace lost income if you find yourself unable to work. Most Americans fail to consider the ramifications of short or long-term disability. If you’re self-employed, the likelihood that you have sufficient disability protection is even less. Disability insurance is pricey, yet imperative, unless you have the financial resources to survive without an income for an extended period of time. Avoid financial disaster by preparing yourself for the possibility of disability: 1. An emergency fund offers short-term protection against income loss. An emergency fund isn’t just for replacing a broken refrigerator or paying the bills after the loss of a job. Your emergency fund can replace wages lost due to disability. Unless your emergency fund is substantial, it will be insufficient if you’re disabled in the long-term. 2. A few states have disability programs. If you’re lucky enough to live in Rhode Island, California, New York, New Jersey, or Hawaii, you might be already covered for short-term disability. 3. Social Security can provide disability assistance. However, the definition of disabled isn’t easily met. Your disability must be expected to last for at least 12 months or likely to result in death. You must be unable to do your current job and unable to adjust to other employment. • Roughly only 30% of applicants are approved. The monthly payment is based on a percentage of your usual pay. Only around $1,200 each month is the average amount. 4. Your employer may offer disability insurance. The limits of group disability insurance plans are normally up to 60% of your salary or $5,000 per month, whichever is less. If you’re used to going through life with a $150,000 salary, a few changes might be in order if you ever have to use your disability insurance. 5. Purchase your own disability policy. Disability insurance is expensive to acquire on your own, but there are many options available. Keep in mind that there is a waiting period, typically 90 days before the policy goes into effect. • Pay attention to the definition of “disabled.” It might mean you’re unable to work at your current job. It might mean that you’re unable to work any job. The cost of the policy is largely dependent on the definition of “disabled.” • The benefits period can vary. It might end at a certain age, or only be in effect for a set number of years. • The elimination period is the amount of time after your disability before the policy begins to pay. • The monthly benefit amount can be chosen. You might need more or less than someone else. • While life insurance costs around 25 cents per $1,000 of coverage, disability insurance is around $20 per $1,000 of coverage. That’s 80 times more expensive! However, if you’re under 65, you’re much more likely to become disabled for at least 90 days than you are to die. 6. Worker’s compensation. If you’re injured at your place of employment and unable to work, you’re covered under workers’ compensation. However, you’re three times more likely to receive an injury outside of work that limits your ability to work. You don’t receive workers’ compensation if that happens. Review your financial situation and decide if you’re adequately covered should you be unable to work for an extended period of time. Your income is your most important asset. It’s important to protect it. For your financial security, ensure that you and your family will have a sufficient income if you can’t work.