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What is Disability Insurance?
Disability Insurance policies are legal contracts written by a life insurance company, where the insurance company promises to pay the insured a specific monthly benefit if he or she becomes disabled due to an accident or sickness.
The typical monthly benefit is $2500, but may be as high as $25,000 or more, depending on one’s income. Disability income insurance may be one of the most important types of insurance for the vast majority of working Americans.
We often think that our biggest asset is our house or our stock portfolio. Actually, for most people, our biggest asset is... "our ability to earn an income". Our house might have an equity of $500,000 or more, but our income potential from our work, may be in the millions of dollars over a lifetime. Many people insure their jewelry and their homes, but often do not insure their biggest asset their earning potential from their job. A serious disability without adequate disability insurance could cause severe financial hardship on an individual and his or her family.
Here are a few things to look for in good disability insurance programs:
- What is the definition of total disability?
- Does the policy also pay when you are partially disabled?
- Does the policy have an automatic inflation rider that increases your benefit when you are disabled. What will the value of a $2500/month benefit be in 20 years, if you are still disabled?
- Can the policy be cancelled on you?
- Are premiums guaranteed to remain level?
- Can you increase your coverage as your income grows?
Do all people need disability insurance? No. If you have enough income producing assets in your financial portfolio, you might not need this type of coverage. Do most people need this type of coverage? Yes!
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