Do you have Paycheck Insurance?

“Your largest asset is most likely your ability to earn income!” – Jeff Gurman. Is your paycheck protected against losses, like your autos and homes?

Something as mundane as tripping on a curb, tearing a muscle working out, or a mild concussion could put you out of work for weeks, or could limit your time spent at work for months. Or something serious like a car accident, cancer, or a heart attack can bring your stream of income to a halt. Everyone can see the obvious benefit of life and health insurance, but many overlook the importance of disability insurance.

If you financially support someone (including yourself) and are not able to sustain your lifestyle for months (or even years) without a paycheck, then you should consider disability insurance. COVID-19 has shown us that many employees and self-employed individuals financially struggled over the past few months, and many of them received extraordinary governmental benefits. Imagine if COVID-19 lasted for 6 months to a year and the government was not going to bail you out. Most people are financially unprotected from a disability and are at risk of their families suffering a drastic financial consequence if an accident occurs.

  • 25% of American workers at some point will experience a long term disability in their careers.
  • 69% of workers don’t have long-term disability insurance coverage.
  • 62% of bankruptcies and 50% of mortgage foreclosures stem from unforeseen medical issues.
  • Most married wage earners who become disabled without income protection will end up divorced!

People think that only dangerous jobs require disability insurance, however, 90% of tong-term disabilities are from illnesses rather than accidents. In the event of an illness or accident, disability insurance enables you to still pay your bills, pay your mortgage, cover everyday expenses, maintain your lifestyle and your larger financial plan.

What are the types of disability insurance?

  • Long-term disability insurance: LTD provides coverage when you can’t work for at least 90 days, and the benefits are distributed tax-free and can be used for anything. LTD is the most cost-effective type of disability insurance (usually costs 1-3% of your annual income) and can even last into retirement, paying around 60% of your gross monthly salary.
  • Short term disability insurance: Short-term policies are typically used for people who think they will recover soon and don’t want to pay for LTD. Most short-term policies only cover up to 6 months (the average disability lasts 36 months) but can pay up to 80% of your gross monthly salary.
  • Employer-provided disability insurance: This coverage plan can be limited and only lasts as long as you work at your company. It is also usually integrated with state and federal DI programs, which is a drawback. And it may be fully taxable to you based on the company’s group plan.
  • Social Security disability insurance and State SDI: SSDI is extremely hard to qualify for because you have to be completely disabled and unable to do any job. The benefit amount is low (under $1200 a month) and it may take many years of appeals to finally qualify. State DI programs are also very hard to qualify for, especially in CA where there is a large amount of DI fraud.
  • Workers’ compensation: This plan only covers accidents that happen at work.

As always call me if you have any questions. 310-417-9040.

-Jeff Gurman

 

The statistics above are provided by Policygenius. The information above is not to be construed as tax, legal or investment advice. That advice can only be provided by independent tax, legal or investment advisors. CA Insurance License #0815028