San Francisco Financial Planner, San Francisco Financial Advisor

If you or your family members count on your income to meet current, normal cash flow needs, how would that income be replaced if you were no longer able to earn it due to a disability?  Replacing that income is the purpose of disability insurance.  There are several sources of disability insurance including worker’s compensation, Social Security, and state disability programs.  All these sources should be investigated and exhausted in the event of a disabling event; however the amount of benefits available, if you qualify for them, may not sufficiently meet your cash flow needs.  In this case, additional insurance is needed if you are not able to self insure against the risk of disability.

Employers may offer both long and short-term disability insurance in their benefits package.   Plans should be examined to determine the elimination period, maximum benefit period, definition of disability, perils covered, and amount of coverage.  Usually disability pay is a percentage of your current monthly income; sixty to seventy percent is fairly common.  How the premiums are paid will have a impact on any potential tax due on the income.  Because the nature of the disability will have a bearing on the tax liability, consultation with a tax advisor is recommended in the event of a disability.

If the income is deemed fully taxable, your net benefits could fall sharply below what is needed to sustain yourself and/or your family during a period of disability.  You must look closely at your ability to self insure with an emergency fund or other assets, and determine the effect on other financial expectations and goals you hold important. If the risk is beyond your financial capacity, an individual policy can bridge the gap.
 
Government sponsored or mandated programs, employer plans and personal policies can all help lessen the financial hardship and emotional burden that result when you are unable to earn an income, due to a disability.  Having those resources in place before a disability occurs, is a crucial step in your financial planning process.

If you considering comprehensive financial planning or interested in discussing disability protection with an independent financial planning firm, please feel free to contact us for a complimentary consultation.