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Why Income Protection Insurance |
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Disability insurance essentially serves as income protection insurance* and may be the most essential element in an individual's risk management program. However, many people underestimate its importance.
We believe that there are three essential components or pillars in planning. The first is the actual plan itself. The second is a good savings program designed to accumulate assets in order to reach specific goals. The third is risk management, which is, for the most part, a sound program of insurance to protect the family from premature death and income protection insurance in the form of a good disability insurance program. Disability insurance for income protection is an essential element of good risk management. This third pillar is designed to help protect individuals and families from illnesses and injuries that would otherwise be financially devastating. Many people recognize the need for life, medical, property and casualty insurance. Disability insurance for income protection, while possibly the most important insurance of all, is often overlooked. Why anyone would purchase life insurance to protect their family yet ignore the need for income protection insurance that disability insurance offers is puzzling, especially when the chances of claims during working years are substantially higher for disability than death.
Few individuals that own homes are without homeowners insurance. In fact, most homeowners would not dream of being without it. One reason for this is simply that if one's home were be lost in a fire, for example, it would be financially devastating to the homeowner. However, if one were to become permanently disabled without a good disability insurance for income protection program, the financial loss could be much worse than losing the house to a fire and having no homeowners (fire) insurance
Clearly, the ability to earn income is the most valuable financial asset almost all individuals possess. Income protection insurance that individual disability income plans offer should be included in most planning situations.
When thinking about disability insurance, consider the following:
- The odds of an individual becoming disabled are more likely at most ages than his or her chance of death
- The factors that affect the probability of becoming disabled include the individual's health status, occupation, certain activities like racing, piloting, etc., age and lifestyle
- The sources available to provide an income during an individual's disability are generally limited to savings, a spouse's employment, borrowing (the ability to borrow may be severely limited if one is disabled when attempting to do so) or disability income insurance. Without the income protection insurance in the form of a good disability insurance plan, few individuals' assets could last very long.
- Spousal employment is not usually a viable source of sufficient family income during a period of disability for several reasons. For example, the non-working spouse may not be able to earn an income anywhere near the amount the working spouse who became disabled was earning. Perhaps both spouses are already employed just to meet existing expenses. If that is the case, a disability could leave them both unable to meet their expenses
- Disability income insurance is the most economical and desirable form of income replacement during disability since the annual cost of each dollar of benefit is normally no more than 3 - 5¢, and sometimes less.
- If an individual saved 10% of income each year, six months of disability could wipe out almost 5 years of savings
* The term income protection insurance is not a type of disability insurance; rather it helps describe disability insurances' function. The protection is effective in the event of sickness or injury per the policy.
More On Why Disability Insurance
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Policy Forms 0100, 1100 and 2100 are underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly-owned stock subsidiary of The Guardian Life Insurance Company of America ("Guardian"), New York, NY. Policy Forms NC111 and NC112 in CA are provided by Guardian. Product provisions and features may vary by state. |
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