Why You Need Disability Insurance
Posted on November 22, 2007 in the Money category
.Do you have insurance on your car? On your home? On your biggest asset? Most people fail to insure their biggest asset. Themselves. Your unlimited earning potential makes you by far the biggest asset you have. Is your biggest asset insured?
It is the ability to earn an income that makes you such a valuable asset. When thinking about insurance, most people think only of life insurance. What I am talking about here, is protecting your ability to earn an income, not providing for your family in case you die. Disability income insurance (DI) protects your ability to earn a living.
Anybody who works for a living needs disability insurance, although less than 15% of all workers in the U.S. have it. The most common reasons people give for not having disability insurance are:
It won’t happen to me
Ric Edelman’s in his book ” The Truth About Money” wrote that 48% of all mortgage foreclosures in the U.S. are caused by disability. When somebody gets injured or ill, they can’t work. They lose their job and thus their income. With no income, they can’t make their mortgage payment and the bank forecloses.
Almost all home owners have insurance on their homes. Yet, the odds on your house burning down are one in 1,200. When was the last time that a house on your street burned down?
The odds however of you suffering a disability, that lasts more than 90 days, before you turn 65 is 1 in 8. As you get older the liklihood of you getting disablied increases. If you are 45 years old the odds of you suffering a disability, that lasts more than 90 days rises to 1 in 5 or 20%
In a study of more than 2,000 severely ill patients from five medical centers around the country, the Journal of the American Medical Association reported that “Home care and disability costs may now be more devastating to patients and their families than the costs incurred in the hospital,” Almost 30% of the families studied lost a major source of income, either because the patient no longer could work, or because another family member had to quit a job in order to care for the patient.
It’s Too Expensive
Compared to other types of insurance like auto, home or term, disability insurance is expensive. Annual premiums for DI can be 1% to 3% of your annual salary. This causes many people to forego coverage because “They can’t afford it.”
Insurance policies are only cheap when the insurance company knows it is unlikely to pay a claim. Policies are expensive when there is higher probability that you will file a claim. Therefore, the more expensive the policy, the more you need the protection. Here is an example of why it is so expensive.Consider a 35-year-old male non-smoker in good health who buys a $250,000 life insurance policy. If this person were to die, the insurance company would owe his survivors $250,000.
On the other hand, if he bought a $2,000 disability income policy and suffered a disability, the insurance company would owe him $2,000 per month — for as many as 30 years. That would be as much as $720,000 in claims!
That is why disability insurance is expensive. Can you afford not to have this kind of protection on your biggest asset?
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