Armchair Millionaire Community Bulletin: Dealing with Disability

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Losing your ability to earn an income, even for a short period, can be financially devastating. However, the right combination of preparation and insurance will go a long way toward insulating you from the worst financial consequences of becoming disabled.

According to the American Council of Life Insurers, nearly one-third of all Americans will suffer a serious disability between the ages of 35 and 65. And while Social Security is available for those with long-term disabilities, the coverage is minimal--certainly not enough for any extras like sending children to college. This means you need to have your own back-up plan in place.

While a disability and its associated loss of income is certainly no fun, it doesn't have to spell financial catastrophe. These two stories from the Armchair Millionaire are testament to that:

"I was on a short term disability at one time. The insurance payment helped out but did not cover the amount my salary did. You have to learn to budget your money and live within your budget. You may have to go without certain things, but you can survive." --Dick B.

"I was unable to work for a short time and my disability insurance really helped out. It didn't cover my entire salary, but we just didn't spend during those months." --Mary

It seems to be human nature to be in denial about the very real chance of an event--like a car accident--changing our lives forever. As a result, most of us are not as prepared as we should be when something really does happen. My checklist provides the basic steps you should take to stay dry on a rainy day.

The Armchair Millionaire's Checklist for Dealing with a Disability:

Get help from an insurance professional. The best insurance agents will act as a consultant to you, helping you to evaluate your insurance needs and periodically reviewing your coverage as your needs change. Find an independent agent that works with at least several financially sound insurance companies (those with an A rating or better) so that you can get the best possible combination of value and coverage.

Get disability insurance. Disability insurance provides you with an income if you become unable to work due to an illness or accident. Group disability insurance is often available through larger employers, but you can also buy your own private policy as an individual. Policies vary as to their definition of disability, the amount of income they will provide, the waiting period before you start receiving benefits, how long your benefits will last and more. These features can be complicated, so have your insurance professional explain the terms and benefits of different policies as needed.

Get long-term care insurance. Nursing homes are not just for the elderly, but are also needed by some younger people with long-term disabilities. Long-term care insurance is generally affordable, and the younger you are when you purchase the insurance, the less expensive the premiums. In addition, some 21 states now offer either tax credits or deductions for long-term care insurance premiums. Again, terms and benefits vary greatly from one policy to another, so get assistance from your insurance professional if you need it.

Have an emergency fund. Regardless of the type of insurance you have, you are likely to still have a gap between the time you lose your income and the time your benefits kick in. In addition, you'll probably have medical expenses that are not covered by health insurance. Prepare for this by keeping some cash in a liquid account, such as a money market fund. I recommend three to six months' worth of expenses.

The Bottom Line: Losing your ability to earn an income, even for a short period, can be financially devastating. However, the right combination of preparation and insurance will go a long way toward insulating you from the worst financial consequences of becoming disabled.

The Armchair Millionaire Weekly Survey: Ever thought about declaring bankruptcy? Log on to http://www.armchairmillionaire.com and let us know.

Lewis Schiff founded the Armchair Millionaire Web site in 1997. His first book, The Armchair Millionaire, was published in 2001. Schiff's newest report, "How to Know When You Are Rich," is now available at http://www.armchairmillionaire.com.

Contact Information:

Lewis Schiff

Armchair Millionaire

877-833-2823

http://www.armchairmillionaire.com

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