BUSINESS

  personal wealth health

Disability Insurance

Protect yourself from financial injury

WILLIAM J. LYNOTT

A few years ago, my landscaper asked me to help him with some business problems. He had plenty of time to spend with me because he had just broken his ankle and couldn’t work for six weeks.

Like many other business owners I’ve known through the years, “Tom” had life insurance but no disability insurance. As Tom’s personal labor was the nucleus of his business, being out of work was a serious financial setback for him.

Had he followed my recommendation before his injury, he wouldn’t have been caught in this fix: No self-employed person should ever risk the dangers of uninsured disability.

Disability defined

Unlike life insurance, disability insurance is designed to protect you (and your family) from financial hardship while you are still alive. As many as one third of all workers will suffer a disability that keeps them out of work for at least 90 days, according to some reports. It doesn’t take an apocalyptic tragedy to put you out of work for a while; a broken ankle or minor auto accident can do the trick just fine.

Protect yourself

In my view, disability insurance is as important as life insurance for self-employed breadwinners. If you are an employee, depending on your employer and the state in which you live, you probably have some protection against disability, perhaps all you need. Regardless of whether you are an employee or a business owner, you should familiarize yourself with exactly how much protection you have; it may be far less comprehensive than you think.

Shop around

Should you wish to buy a disability policy, shop around. Many websites, both general and insurance company sites, provide dependable information on disability insurance.

Critical criteria

Before buying, calculate the amount of income you will need for your basic needs. Also, you want to make sure that your policy is guaranteed both renewable and non-cancellable so long as you pay your premiums on time. Further, your policy should allow you to purchase additional coverage as your income grows and your needs change.

Most importantly, it must contain coverage for a long-term disability, guaranteeing your payments at least until the normal retirement age of 65. It is here that an inflation provision is essential. If you suffer a long-term disability, the value of your payments will erode through time unless your policy contains a provision to adjust payments for inflation.

How much?

The correct amount of disability insurance depends on your needs. As a rule of thumb, some insurance advisors suggest that coverage amounting to 75% of your current income is about right. Disability insurance payments are non-taxable, so you probably won’t need 100% of your normal income to maintain your standard of living.

Be prepared

Remember, you can’t predict when an accident will occur, but with a bit of research and planning, you can be as prepared as possible for if and when it does. OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

MR. LYNOTT IS A FREELANCE WRITER WHO SPECIALIZES IN BUSINESS MANAGEMENT AS WELL AS PERSONAL AND BUSINESS FINANCE. VISIT WWW.BLYNOTT.COM, OR SEND COMMENTS TO OPTOMETRICMANAGEMENT@GMAIL.COM.