If someone in your family suffers a long-term disability, it can be more taxing on your family's financial situation than if that person were to die. Why? Because when someone dies, their income stops, but so does their consumption of goods and services. However, when a person becomes disabled, their incomes stops but their expenses continue. In fact, a disabling injury or illness often results in increased spending on things like medical bills, modifications to your car or home, etc.
The best way to determine how much disability income insurance you need to protect your loved ones is to meet with a qualified insurance agent. This person can help you understand what your current situation is and how much disability insurance you should consider. Remember, it is always better to have something in place, rather then do nothing at all.
An Example:
Here is an example of how a disability can impact a family's finances. Consider the case of Tom and Denise Smith, the parents of a nine year old boy living in a Midwestern town. Tom is 35 and earns $35,000 a year selling cars. His monthly take-home pay is $2,129. Denise, after staying home several years to care for their son, is now a part-time receptionist at a local dentist's office. She brings home $560 per month.
Tom and Denise are able to support their lifestyle until Tom becomes ill due to Parkinson's disease and can no longer work. Suddenly, there is a dramatic reduction in Tom and Denise's income. After checking into their options, Tom and Denise find that Tom is not eligible for Social Security Disability benefits. Tom has no prior military or civil service that might qualify him for other government disability programs and he doesn't qualify for Worker's Compensation benefits because his illness is not job-related.
The particulars of what happens next largely depend upon whether Tom has disability benefits through his employer and if so, what type of benefits there are and/or whether he has an individual disability plan.
If Tom's employer does provide long-term disability (LTD), Tom would be entitled to benefits under his employer's policy - probably up to 60% of his gross salary, or $1,750 a month. If this benefit is provided by and paid for by his employer, he will have to pay taxes on any benefit received. If Tom has an individual disability policy, benefits from that plan would be received free of taxes. Also, to continue his family's group medical insurance, Tom would have to increase his premium contribution to include any portion that was previously paid for by his employer.
If, on the other hand, Tom did not have any disability insurance at all, employer sponsored or individual, Tom and Denise would be forced to immediately begin spending any savings they may have accumulated up to this point.
