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Personal Financial ConsultingLong-Term Disability Income Insurance

Long Term Disability Income Insurance is designed to replace your income if you become ill or disabled during your working career. Disability insurance can be supplied by your employer and/or you can own it individually by purchasing it yourself.

What's the chance you will need Long Term Disability Income Insurance to replace your income? (Source: US Census Bureau 2003 male and female)

AgeNo disabilityDisabled
Five to 15 years old94%6%
16 to 20 years old93%7%
21 to 64 years old88%12%
65 to 74 years old70%30%
75 years old plus49%51%

Employer Supplied Disability Income Insurance - Long Term Disability Income Insurance supplied by your employer is best if it is 100% paid by the employee. If it is paid by the employer (partially or completely) the income you would receive from this policy would be taxable at normal income tax rates.

This presents a problem because most disability plans have a maximum payout of 60% to 70% of your gross income. If this 60 or 70% income were taxable your net income could be as low as 30% to 45% of your gross and insufficient to meet your living expenses. The largest reason people default on their home mortgage payments and lose their home is disability. In addition, most people's living expenses increase when they are disabled due to medical costs not covered by their medical plans.

Definition of Disability - One of the most important parts of the policy is the definition of disability. The best definition is called "Own Occupation". This provides income if you cannot perform your normal occupation. Other definitions such as the Social Security (SSDI) definition will only pay if you cannot hold any job, at any salary, even if it is not available in your local economy. Some disability plans have the own occupation definition for the first one or two years, then change to the SSDI definition.

How Long Will Your Disability Plan Pay? - Long-term disability plans typically pay for as little one year, two years, five years or until age 65.

Inflation Protection - Your policy should include "compounded inflation" while you are on claim or you might not have enough money to pay your living expenses. Your policy should also include the option of increasing coverage as your salary increases.

Company Strength - You should purchase a policy from a company with excellent financial strength. Otherwise, you could find the company to be out of business when you need the income.

Depending on the Social Security Disability Income (SSDI) for Your Disability - Because SSDI's definition of disability is so restrictive only about 2% of people applying for it receive it.

Calculating Your Need - You should consult a qualified professional to assist you in calculating your true long-term disability income need because you do not want to be under or over insured. In addition, since there are multiple portions of employer-provided long-term disability insurance policies that are very complicated they need to be interpreted by a professional and explained to you in layman terms, so you will be able to make the best decision for yourself.

Personal Financial Consulting Inc. and/or its financial planners are qualified and maintain continuing education qualifications to provide qualified analysis of your needs and have access to many disability insurance companies to provide you the best policy for the least cost.Go to Top

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