After you have a plan to handle short-term income disruptions, next you will need to evaluate your financial plan for long-term income disruptions. This long-term income protection can come in the form of long-term disability insurance.

Why You Need It

The chances of experiencing a disability that lasts at least six months, before you reach retirement age, is 3 in 10. While a 3 in 10, or 30%, chance may sound low, consider this:

• 3 in 1,000 (.003%) – The chances that your home & contents will be damaged by fire this year.
• 1 in 4 (25%) – The chances you will be involved in an auto accident in your lifetime.
• 3 in 10 (30%) – The chances you will be disabled for at least 6 months during your working years.
• 7 in 10 (70%) – The number of survey respondents that indicated they could not cover normal living expenses for more than 6 months if they experienced a disability.

How To Get It

A long-term disability insurance policy (long-term income protection) can be purchased as an individual or through your employer, if offered. If you choose to purchase through your employer, make sure that the policy is “portable”. The portable option means that you can take the policy with you an individual if you leave your employer.

How It Works

After you purchase a long-term disability policy and experience a covered illness or injury, you will complete and submit a claim form to your insurance provider. The insurance provider will review the information you provided and approve or deny the claim. Once approved, you will begin the elimination period (a waiting period before payments can begin) of between 90 and 180 days. After the elimination period you will begin receiving payments, as agreed in your policy, for as few as 5 years or as long as until you reach age 65, again based on your policy.

How Much Does It Cost?

This type of insurance can often be purchased for less than $1,000 per year for a policy that would provide you $3,400 per month until age 65 after an elimination period of 180 days.

Other Considerations

When you decide to price and purchase a policy be sure you understand the following terms/options that may be in your policy:

• Non-Cancelable
• Own Occupation
• Guaranteed Renewable
• Future Purchase Option
• Cost-of-Living Adjustment

Last, if you are depending on the US Social Security Administration Disability for your long-term income protection be aware that according to the 2010 data, 35% of the applications were approved. That means that 65% of cases were denied. Further, of those approved, the average payment was $1,110.50 per month.

Are you part of the 50% who have a financial plan in case of a disability?