044: Disability Insurance Protection

Continuing discussion about employee benefits and how to maximize the use, today I want to talk about the most common mistakes I see people make:

NOT ENROLLING IN DISABILITY INSURANCE PLAN

Disability insurance coverage provides income protection, up to 70% of your salary, if you are not able to work. You typically get a chance to enroll in this coverage when you start working for a company.

If you are young and healthy, you might wonder why you would need it. But you never know what might happen, and it’s a good idea to be protected.

Let’s look at what disability means for your financial picture. If you can’t work, you have no income and you can’t pay your bills. You might have some savings set aside, but what if you can’t work for a long time?

If you missed the initial enrollment period wait for Open Enrollment season, typically at the end of the year.

I also highly recommend electing to pay your premium with after-tax dollars. If you do this, the benefits you receive will be tax-free. But if you pay with pre-tax dollars, or your employer pays for your coverage, then the benefits you receive will be taxable.

For example, assume that your disability insurance provides coverage for up to 70% of your income. If you pay your premium with pre-tax dollars, when you collect the benefits, you will receive 70% of your income. But you’ll have to pay income taxes on this amount, reducing how much you receive. Will it be enough for you to live on?

 
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