Protecting Your Wallet From the Cost of Illness
No one wants to think about it, but any of us can become seriously sick or injured.
Here's a guide to the types of insurance that can help shield you and your family from the financial burden of injury and illness.
What is it? Disability insurance replaces part of your income if an injury or disease makes it impossible to work.
Do you need it? "If you depend on your income, you're taking a huge risk if you don't get disability insurance," says Carol Glazer, president of the National Organization on Disability in New York.
Why? Your biggest asset is probably not your car or house, but your ability to work. If you make $50,000 a year and work for 45 years, that adds up to more than $2 million. Protecting that money makes sense.
Many disability policies will pay 40% to 60% of your salary.
How much does it cost? While it depends on your situation, many people can get disability coverage for about 1% to 3% of their annual salary, says Barry Lundquist, president of the Council for Disability Awareness in Portland, Maine.
What else do you need to know? Pay attention to the terms. For example: How quickly after you stop working will it kick in? Try to get a policy that will cover you until at least age 65.
Know the difference between short-term and long-term disability. Short-term disability will start quickly but might only last three to six months. Long-term disability protects you from more serious financial effects.
See if you can buy disability insurance through your employer. It's more expensive if you have to get it on your own.
Disability is also costlier and harder to get as you get older. If you already have a diagnosis when you apply, your policy might exclude disability caused by your health condition.
What is it? Life insurance is a way of protecting your family if you die unexpectedly. Your beneficiary would generally get a tax-free payment from the insurance company.
There are different types: term life insurance and permanent life insurance, like whole life insurance.