Adding the combination of term life insurance and disability income insurance to a financial plan means you’ve set up an important base of protection. If something happens to you while your insurance is in place, your family is protected. That’s great, because now you have one less thing to worry about, which frees you up to plan for all the things in life that will go right.
WHY THIS IS GOOD FOR YOUR FINANCIAL PLAN
Financial planning is about setting goals and then creating a budget that helps you reach them over time. In practice, that means you’re setting aside money from every paycheck to fund goals like retirement or your kids’ education, all while being able to pay the mortgage and other regular bills.
Without life and disability insurance, you may very well reach all those goals. But if something goes wrong, the income that’s funding those goals could be greatly reduced or go away entirely. In many cases, money you have already saved would go to fund living expenses first, which can put your goals out of reach.
That’s why life and disability insurance are so critical to a financial plan. With the insurance in place along with an emergency fund, even if something happens that could affect your income your family would be in a position to continue paying day-to-day expenses while saving for future goals.
SOME THINGS TO KNOW ABOUT YOUR TERM LIFE INSURANCE POLICY
Term life insurance is straightforward, but there are a few things to know about your policy.
Your coverage will expire someday. Term insurance is a great way to meet a large death benefit need at a lower cost than permanent life insurance. But, in many cases, term life insurance expires without paying a death benefit.
You could convert some of your policy to permanent insurance. The death benefit of permanent insurance never expires as long as premiums are paid, and a permanent policy has additional benefits that you can use during your lifetime. Because of this, many people use permanent insurance as a stable financial planning tool that can serve many needs. You may be able to convert some, or all, of your term insurance without needing to qualify for coverage — even if your health has changed, potentially making it more difficult to get additional insurance.
You can make changes in the future. Whether you need to change your beneficiaries or make changes to the amount of coverage you have, your policy can be updated. It’s a good idea to meet with your financial professional on a regular basis to ensure that your policy still suits your current needs.
SOME THINGS TO KNOW ABOUT YOUR DISABILITY INCOME INSURANCE POLICY
Disability income insurance tends to be straightforward. If you are sick or hurt and can’t work, your policy will pay you a monthly benefit. But here are a few things to know if you ever need to use it.
What counts as a disability? Disability insurance covers you when an injury or illness prevents you from working, and health reasons are more common than you might think. Musculoskeletal and connective tissue disorders, along with cancer, account for roughly 40 percent of new long-term disability insurance claims. Heart conditions, injuries and some mental illnesses are also covered via long-term disability.
What if I can do some, but not all, of my work tasks? Disability claims aren’t always all or nothing. There are frequently cases where someone can still work, but in a reduced capacity. In such a case, that person may be eligible to file a partial disability claim, which would replace a portion of lost income.
What’s the difference between short- and long-term disability? Short-term disability (typically offered through your employer) will cover you in the initial weeks and months of your disability. Long-term disability insurance covers you if your disability lasts for more than a few months.
Be aware of your coverage when you change jobs. Many people get some disability insurance through work. It’s a great benefit. But there can be a few drawbacks. One, most work policies only cover a portion of your income, perhaps 60 percent. In addition, if you change jobs, you may lose the coverage you have through work. With a private policy that you purchase on your own, you don’t have to worry about losing your coverage when you change jobs.
What’s the benefit waiting period? For long-term disability, this is how long you’ll have to wait before your benefits kick in. Let’s say you become disabled on March 1. If your policy has a 90-day waiting period, your benefits will start 90 days later, just before June 1. Short-term disability is designed to cover your costs prior to long-term benefits kicking in.
Your monthly benefit. Once your policy begins paying benefits, this is the maximum amount that you’ll get each month until you are no longer disabled, or when you reach your maximum benefit period (typically in your 60s).
YOU’VE GOT THE RIGHT PIECES IN PLACE
You can rest easier knowing that your income is protected. As your financial plan grows with you, in the coming years you may want to consider upgrading your life insurance by converting some of your term insurance to a permanent policy. Permanent life insurance provides the same death benefit as term, but also accumulates cash value in a tax-advantaged way. When combined with investments, the cash value of life insurance can help you be more efficient with your financial plan overall.