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Should You Purchase Disability Insurance?


When it comes to tools to protect their families financially, the first thing many people think about is life insurance. We, at Frontier, believe that life insurance is obviously an important part of any financial protection plan, but there’s another tool that may be just as important: disability insurance.

We believe that for manypeople, the chances are greater that they will become disabled during their working lives than they are that they will die. According to the Council for Disability Awareness, the average 35-year-old American man faces a 21 percent chance and the average 35-year-old American woman faces a 24 percent of becoming disabled for three months or longer during their working careers.

Even worse, there’s a 38 percent chance for each that the disability will last five years or longer, with the average disability lasting 82 months. However, most people believe that their own chances of experiencing a long-term disability are significantly lower than these averages.

A Source of Income Replacement

Statistics like these drive home the importance of disability insurance as part of a family’s financial protection. Disability insurance will replace a portion of the insured’s earned income if he or she is unable to work due to a disabling event.

Many companies offer group disability insurance as part of their employee benefits package. If you’re self-employed, your company doesn’t offer group disability or you’d like more coverage than is offered through a group policy, you might want to consider buying an individual disability policy. There are two main types of individual disability policies:

  1. Short-term disability: This policy will replace a percentage of your earned income (typically 60 percent to 70 percent) for between six months and one year after a disabling illness or injury. There is typically a short waiting period, such as two weeks, before benefit payments begin.
  2. Long-term disability: This policy will replace a percentage of your earned income (typically 40 percent to 60 percent) until the disability ends or you reach retirement age. There is typically a longer waiting period with a long-term disability policy, such as 90 days, before benefit payments begin.

Defining Disability

One of the most important factors with disability insurance is how the policy defines disabled. Under an “own-occupation” definition, the policy will pay benefits if you can’t perform the job duties and requirements of your current job or occupation, as defined in your insurance application. But if the policy doesn’t include an own-occupation definition, you might have to work any job that you’re qualified to perform — even if the pay is much lower than you earn now.

For example, if a surgeon were unable to perform surgery due to an injury but he was able to work at a convenience store, he would have to take the convenience store job if his policy didn’t include an own-occupation definition. Obviously he would earn much less money in the convenience store job, so the own-occupation definition is a critical component of a disability insurance policy.

When buying an individual disability policy, you will usually be allowed to replace up to 75 percent of your earned income. Other benefits of purchasing an individual disability insurance policy include the following:

  • You can customize your coverage by purchasing extra features or riders, like annual cost-of-living adjustments, residual disability and waiver of premium benefits.
  • You won’t lose coverage if you change jobs, since your policy isn’t contingent on employment with a certain company.
  • You can shop around and choose the insurance company that offers the best coverage and value for your unique circumstances.
  • Your benefits may be tax-free. If your employer is paying the policy premiums, the benefits you collect may be taxable.

How Much Does It Cost?

So how much should you expect to pay for disability insurance? According to the Council for Disability Awareness, premiums generally range between 1 percent and 3 percent of annual income. A wide range of factors will affect how much a policy costs, including your age, health, gender, smoking status, income, occupation, length of the waiting and benefit periods, and the policy’s definition of disability.

You should speak with your financial advisor and insurance agent about whether buying disability insurance is a wise move for you and your family.

Please contact us if you have more questions about disability insurance.


The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC’s (“Frontier”) investment advisory services. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Frontier is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.