Basics of Disability Income
The insurance topic is one we have all dealt with at some point in time. We have Life Insurance to protect our family against the financial loss in the event of a death. We insure our homes, cars, boats and personal possessions. All of these are very important. However, have you considered insurance on your most valuable asset? This asset is your ability to work and earn a living.
In the event of a disability your bills and obligations continue and in some cases even increase. Do you have adequate protection to maintain your lifestyle? How long would your cash reserves last? This is the exact situation where your disability coverage "steps in" and becomes you paycheck. The key point to remember is that your disability doesn't make you rich in the event of a disability, in prevents you from becoming poor.
How much coverage should you have? Obviously, this depends on your personal situation. Are you a one-income household? Two-income household? What are your monthly obligations? Will you be changing your life style in the near future? All these determine what your monthly benefit should be.
Carriers will place limits on how much you qualify for. Typically you can have around 60 to 70 percent of your gross income. If you make $100,000 a year, you probably take home around $65,000 after taxes. For individual policies carriers base what you qualify for closer to your take home pay. The reason is that an individual policy that you pay for with after tax premium dollars would result in the monthly benefit being tax-free. If your employer ever provides coverage for you and pays the premium, the benefit would be taxable.
During your residency, though I like to keep the Disability Income conversation extremely simple as you will have plenty of time after residency to evaluate how much coverage you will need. In residency you most likely do not need a huge personal policy. What you should strongly consider is to secure a personal policy with a Purchase Option.
One certainly hopes that we will be injury or illness free during our working career but in having a well-rounded and solid financial plan, your personal disability coverage should be a major piece in your protection plan.