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Disability insurance can be a lifesaver

| Thursday, May 9, 2013, 12:01 a.m.

Americans use insurance to protect a host of assets, from cars to homes to jewelry. But many people forget to insure their most important asset: the ability to work and earn a living.

As a recent Social Security fact sheet states, “Just over 1 in 4 of today's 20-year-olds will become disabled before reaching age 67.” And if disease or injury renders you disabled early in your working life, the lost wages can be worth much more than a house or a sedan.

Do the math: If you make $50,000, 20 years of labor pays $1 million.

The good news is that if you don't have insurance and get hurt or ill, you aren't doomed. The Social Security Administration provides some form of disability benefits as a safety net.

But it's hardly enough to live comfortably. As of March 2013, the average disability payment was less than $1,130 per month.

For many families, the prospect of losing just a few months' income or living on half the paycheck just isn't an option. If this sounds like you, it may make sense to seek out some form of disability insurance to protect yourself.

Here are your options:

• Group disability plans. The most common kind of disability insurance, group plans are typically offered through your employer. The lowest tier of group coverage is extremely affordable, so that's a big plus, but benefits vary greatly. Consider that group plans typically don't come close to replacing your full paycheck and often place a monthly or yearly cap on the dollar amount you can be paid.

• Individual disability plans. If your employer doesn't offer a group plan or you don't like what you're offered at the office, you can shop around as an individual. But keep in mind that, without a group, your price is based on your unique situation and needs. Like health insurance, that means individual plans are generally cheaper if you're young and healthy and more costly if you're old with heart trouble.

But even so, shopping as an individual opens a wealth of options — such as coverage for lost bonus income above your salary or portability to keep the disability coverage even if you change jobs.

• Supplemental disability plans. If you have a basic employer-sponsored disability plan or if you're content to rely on Social Security for any long-term disability claim, then supplemental disability coverage is a decent and affordable bridge. As the name implies, it is an additional layer of coverage to help pay for medical or living expenses that may not be covered by a long-term plan.

The bottom line is that, with any financial product, your personal needs will dictate what kind of coverage is best for you. The government will provide a basic safety net should tragedy strike, and obviously some disability coverage is better than none.

However, don't fool yourself into thinking that just because you're covered that you will be able to pay all your bills should a medical emergency strike.

So start with your employer and read the fine print on the disability coverage it offers, if any. Then consider whether you can get by on those terms or whether it's worth pursuing individual or supplemental coverage.

After all, the worst time to read the fine print on your disability coverage is when you need it. Be proactive and plan ahead.

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