3 Things You Didn't Know Where Covered By A Disability Policy

With May being disability insurance awareness month, I thought it would be appropriate to write a post that focuses on disability insurance. Most people are generally aware that disability insurance pays a percentage of your pay if you are too hurt or sick to work. In simple terms, disability insurance can be looked at as income insurance and should be included in any sound financial plan. Disability insurance policies can offer riders (additions to the policy) that cover some unique things that you may not be aware of. Here are three items you didn’t know could be covered by a disability policy.

1) Student Loans

This may come as a shock, but more students than ever are graduating college with student loans. They have become a necessary evil of getting a college degree for most people. The average student loan debt is $30,100 (According to The Institute of College Access and Success) with an average monthly payment over $350. Needless to say, college grads carry a fairly significant debt burden. Those bills will keep coming in regardless if a college grad is working or not.

If a recent grad is too hurt or sick to work, they may qualify for their employer’s disability plan (if they are lucky enough to have one), but they will only earn 60% of their pay. What are the odds that they can keep those loan payments up with a reduced income? Now, you can attach a student loan rider to an individual disability insurance policy. As a result, the disability will pay your outstanding student loans if you can’t work because of a disability.

2) Business Expenses

If you’re a business owner, odds are your business has monthly expenses whether that’s lease payments, insurance costs or other fixed expenses. Most business owners are an integral part of the business. If the owner isn’t able to come to work, how would the business be affected? Most businesses would suffer greatly from the loss of revenue.

A Business Overhead Expense (BOE) policy is designed to keep the business in running in the absence of the business owner. The Business Overhead Expense policy will provide a benefit that can be used to pay for fixed business expenses until the owner can return to work.

3) Retirement Contributions

Most people contribute to their retirement plan at work so eventually they don’t have to work anymore. If you save $300 a month for 25 years and earn 6.5% compounded, then you’ll have just under $250,000. Not too bad.

When people become disabled, contributing to their retirement plan is the last thing on their mind. Since disability insurance covers less than full pay, most people don’t have the extra funds to keep saving. So now, most people have higher expenses, a reduced income and will have very little saved for retirement once their disability payments run out. How can a disabled person retire?

Disability policies can offer a rider that will make contributions towards a retirement account in the event of a disability, so that you can retire.

Disability insurance policies can be valuable tool in your financial plan. Make sure you or your advisor understand how the policies cover disabilities, what benefits you can have and how they fit in with everything else you’re doing.