Avoiding Financial Ruin with Disability Insurance

You likely already have life insurance to protect your family against the financial adversity they could face after your unexpected death. And you've probably insured your home, cars, and other personal possessions against the financial loss that can result from fire, theft, or damage. But what have you done to protect yourself and your family against an injury or sickness that affects your ability to work? Do you have disability insurance?

The reality of how long you and your spouse could stay afloat if one of you were to lose your income due to a disability is sobering. On one income you may no longer have the ability to pay your mortgage, car payments, and other bills. If you are without disability insurance, tapping into home equity, retirement savings or credit cards can offer a temporary solution with damaging long-term consequences. Disability insurance offers an affordable method to maintaining your lifestyle without creating additional debt for your family.

There are many different ways to obtain disability insurance. You may have group coverage at work, through unions or membership groups and, depending on the nature and cause of your disability, you may also qualify for workers' compensation, Social Security, and veterans' benefits. Without the benefit of group insurance, individual coverage is a must.

There are many different types of disability insurance contracts and several definitions of disability. Consider whether you contract includes:

A favorable definition of total disability that is consistent with the risk of your occupation and, at a minimum, ensures the payment of benefits in the event you suffer a "loss of income."
A non-cancelable, guaranteed renewable clause that states the insurance company cannot cancel the policy or increase the premium until a certain age (as specified in the policy).
Benefits that are payable until age 65 or later.
A waiting period consistent with your overall financial plan. The longer you wait to receive benefits after your disability, the lower your premium. You can purchase coverage that provides benefits on the 31st day of disability or up to two years later. Whichever option you choose, make sure you can handle the financial exposure.

Covering Your Bases with Life Insurance

The 21st century brought more than a new millennium to experience. Over the last two decades, inflation has continually outpaced wages and income and this trend shows no sign of slowing. This inverse relationship between wages and costs means that you need more dollars each year to purchase the same items as you did the previous year. Financial and estate plans are not impervious to the pressures of inflation. Here are three aspects of your financial plan that you should consider adjusting:

1) Spousal income replacement

With the advent of telecommuting, dual income households seem to be taking over the landscape. For some, higher levels of household income have permitted better lifestyles. For others, two incomes barely get the bills paid. If your budget and lifestyle are dependent on two incomes, you should review your life insurance coverage and make sure that both wage earners are insured. You, your spouse, and your family may be in financial jeopardy if your insurance plan has not been recently updated.

2) Purchasing a new home and taking out a mortgage

Today, many homes are purchased with the help of a substantial mortgage. If you or your spouse suffered an untimely death, would your current life insurance be enough to pay off the balance of your mortgage? It's important to make sure your life insurance policy's death benefit provides the necessary funds to accomplish your goals--protecting your family's lifestyle.

3) College education costs

If you have college education plans for your children, you may be concerned about the rising costs of higher education. In 1977, the annual cost at Harvard University was $7,060. Thirty years later, you would have to pay $32,556-an increase of more than 350 percent (Figures from Forbes, Nov. 1, 1977, compared to the Harvard Admissions Office, 2008-2009 academic year). Putting money aside for your child's education requires a long-term financial commitment and a disciplined approach to saving. However, it also requires a contingency plan in the event of an untimely death. For this reason, you may want to include all or part of the projected education costs in your insurance plan.

Life insurance planning doesn't end with these three scenarios. In fact, you may have additional goals you want to hedge against in the event you or your spouse suffers an untimely death. Adjust your life insurance coverage for inflation to ensure your wishes will be fulfilled in the future.

Take a Holistic Approach to Personal Finances

In July 2008, State Farm Life Insurance Company announced the results of its first ever Fiscally Fit Cities Report, whose findings indicated that less then 50 percent of American households are making provisions to secure their financial future. The report measured citizens in 50 metropolitan areas in terms of investments, quality of life and life insurance coverage. Twenty-seven criteria were analyzed that demonstrate what Americans are doing to maintain their finances.

The researchers discovered that citizens in the cities deemed most financially fit were creating strategies to protect their assets with short-and long-term investments. However, what was missing was a holistic approach to personal financial planning, including owning enough life insurance coverage to keep their families afloat after the sudden death of a wage earner.

Surprisingly, researchers found that citizens in areas with high household incomes were not saving enough nor protecting assets adequately, as you would expect. In fact, people in wealthier areas spend more on real estate and are less disciplined in saving money and purchasing life insurance to protect their family.

Ultimately, the data revealed two concerns: Americans aren’t looking at their finances as a complete package, and they don’t understand the importance of life insurance.

As a rule of thumb, most people require seven to 10 times their annual income in life insurance benefits if their family is to maintain a comparable standard of living at their death. The other issue is not insuring all of the family members who need coverage. Many families believe the primary wage earner should be the insured; however, they fail to realize that a stay-at-home spouse or a second wage earner also needs life insurance.

In addition to examining your life insurance needs, consider these simple steps to plan for tomorrow:

* Take care of yourself – Good health leads to a longer, fuller life and more options for generating income later in life. Good health can also help control costs, particularly for insurance policies.
* Stay balanced – While it's tempting to spend when you are doing well, without proper planning you may need to lower your standard of living later in life. It's smarter – and less disappointing – to live conservatively and prepare for the unexpected.
* Start early – You're never too young to reduce debt and live within your means, invest wisely, protect your assets through life insurance, and enjoy a healthy lifestyle.

September is Life Insurance Awareness Month

A recent survey indicates that 68 million Americans have no life insurance and those with coverage have far less than most experts recommend ensuring a secure financial future for their families. In fact, ownership of life insurance has been declining for decades and the impact is being felt in very human terms today. When a loved one dies without adequate life insurance coverage, surviving family members often face very difficult financial consequences like having to work additional jobs or longer hours, borrow money from friends and family, move to smaller, less expensive housing, or put plans for a child’s education on hold.
With so many Americans in a financially vulnerable situation today, the life insurance industry has created a month-long public awareness campaign aimed at encouraging the public to take stock of their life insurance needs. Life Insurance Awareness Month (LIAM) is an industry-wide effort coordinated by the nonprofit Life and Health Insurance Foundation for Education (LIFE). Each year, LIFE is joined in this educational initiative by more than 100 of the nation’s leading insurance companies and other industry groups. All share the same objective: to end the unnecessary financial suffering that so often occurs when a loved one dies.
Please Email or call me (619) 208-7717 if you would like a free review of your life insurance. thewic@sbcglobal.net