Do I Need Disability Insurance?

Do I Need Disability Insurance?

About Disability Income Insurance…

When purchasing disability income protection, there are a number of options to consider:

• Additional benefits available such as protection against inflation for future benefits paid referred to as Cost of Living Adjustment (COLA), Guaranteed Purchase Option (GPO), and Catastrophic Disability.

• Non-cancel-able or guaranteed renewable provisions.

• Various waiting periods are available. The longer the waiting period, the lower the premium.

• Coverage that offers varying benefit periods for you to choose from. The longer the period covered by the policy, the higher the premium.

• The Knights of Columbus Disability policy offers “Own Occupation” coverage for the first two years, which means we will pay benefits if the insured is unable to work in their specialized field. Thereafter it is any occupation for which you are reasonably qualified.

1 Source: SSA Publication No. 05-10029, May 2015.


2 Source: U.S. Census Bureau, Americans with Disabilities 2005 and 2010, Table 1 (Age 21-64) July 2012

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Learn More: Disability Income Insurance

Read more about how disability insurance fill in the financial gap when your family could need it most.

Disability Income Insurance

Disability Income Insurance

Your most valuable asset is your ability to earn an income.

Should you or your spouse experience a serious illness or injury, how would the loss of income impact you? Combine the loss of income with increased expenses due to necessary medical care, and the financial stress of a disability can become just as taxing as the disability itself.

While your employer may cover you with some form of company-paid disability insurance, often coverage is only partial and/or short term. Purchasing a Personal Disability Income Insurance policy can help you cover any financial gaps that you may have, with the added bonus that these benefits are paid to you tax-free.

Because the benefit period of short-term policies last a maximum of two years and long-term policies have a typically extensive waiting period, it is wise to acquire both long-term and short-term disability insurance policies. Having both policies will assure that you are covered from the unfortunate moment you fall ill or become injured through the entire period of disability, or even the rest of your life.

Policy Considerations

l Definition of disability: Some policies pay benefits if you are unable to perform the duties of your regular occupation, while others pay only if you can engage in no gainful employment at all. Some policies also pay benefits if you become ill or injured and are unable to earn a specified percentage of your income.

Amount of income: This amount varies by policy, but a policy that pays 50 to 60 percent of your monthly salary (not including bonuses or commission) is the most common and most affordable option.

Length of benefit period: You can choose to receive benefits that are payable from one year, two years, five years or to retirement age. Opting for coverage that lasts through age 65 affords the best protection against an injury or illness that permanently removes you from the workforce.

Residual benefits: Selecting this feature will give you partial payment in the event of an income reduction due to being unable to fulfill all of your job responsibilities.

Cost of living increases (COLA): Adding optional COLA to your disability policy means that the coverage you purchase today will keep up with the pace of inflation during the lifetime of the policy.

Short-term disability policies have a waiting period of up to 14 days with a maximum benefit period of no longer than two years.

Long-term disability policies have a waiting period of several weeks to several months, with a maximum benefit period from a few years to the rest of your life.

When disability occurs, most options, except insured income replacement, may be inadequate or quickly exhausted. 

Disability is difficult enough – disability without income is even worse. Disability income insurance can be a sound long-term solution to a long-term disability.

PROPER PLANNING FOR DEATH AND DISABILITY SHOULD BE CONSIDERED BY EVERYONE.

Odds of Death Chart

Use the chart below to learn more about current statistics of death before 65yo.

Odds of Death at Age

25

30

35

40

45

50

Within 15 Years

1 in 50

1 in 39

1 in 27

1 in 18

1 in 12

1 in 7

Within 30 Years

1 in 14

1 in 9

1 in 6

1 in 4

1 in 3

1 in 2

Before Age 65

1 in 6

1 in 6

1 in 7

1 in 7

1 in 7

1 in 8

Odds of Disability Chart

Use the chart below to learn more about current statistics of becoming disabled before 65yo.​

Odds of Disability at Age

25

30

35

40

45

50

Within 15 Years

1 in 37

1 in 31

1 in 21

1 in 14

1 in 9

1 in 6

Within 30 Years

1 in 11

1 in 7 

1 in 5

N/A

N/A

N/A

Before Age 65

1 in 5

1 in 5

1 in 5

1 in 5

1 in 6

1 in 6

 

Source for odds of death: 2001 Commissioners Standard Ordinary Table for Male, Age Last Birthday.

Source of odds of disability: 2012 Society of Actuaries IDEC Table for Male, Occupation Class 1, 90-day elimination.

Take the first step toward achieving your financial goals.

Learn More: Do I Need Disability Insurance

Read more about how disability insurance can keep and your family safe in a stressful time of need.

Retirement Assets Depletion Rates

Retirement Assets Depletion Rates

Important: Hypothetical illustrations generated by Morningstar regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Results may vary over time and with each simulation. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2017 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee for future results.

High Withdrawal Rates Will Quickly Deplete Your Assets

Several issues should be examined when determining an investor’s withdrawal rate. Asset allocation, time horizon, and consumption patterns are all important factors in shaping how long portfolio wealth will last.

This chart looks at a hypothetical 50% stock/50% bond portfolio and the effect various inflation-adjusted withdrawal rates have on the end value of the portfolio over a long payout period. Each hypothetical portfolio has an initial starting value of $500,000. It is assumed that a person retires at age 65 and withdraws an inflation-adjusted percentage of the initial portfolio wealth ($500,000) each year beginning at age 66. Annual investment expenses were assumed to be 0.73% for stock mutual funds and 0.60% for bond mutual funds.

As illustrated, the higher the withdrawal rate, the greater the chance of potential shortfall. The lower the rate, the less likely an investor is to outlive their portfolio. Therefore, retirees who anticipate long payout periods may want to consider assuming lower withdrawal rates.

The image was created using Monte Carlo parametric simulation that estimates the range of possible outcomes based on a set of assumptions including arithmetic mean (return), standard deviation (risk), and correlation for a set of asset classes. The inputs used herein are hypothetical, based on historical long-term figures. The hypothetical risk and return of each asset class, cross-correlation, and annual average inflation follow. Stocks: risk 20.2%, return 12.1%; Bonds: risk 5.7%, return 5.4%; Correlation 0.00; Inflation: return 3.0%. Other investments not considered may have characteristics similar or superior to those being analyzed. The simulation is run 5,000 times, to give 5,000 possible 35-year scenarios. A 90% confidence level indicates that there is a 90% chance of the outcome being as shown or better. Higher confidence levels are chosen in order to view tougher market conditions. A limitation of the simulation model is that it assumes a constant inflation-adjusted rate of withdrawal, which may not be representative of actual retirement income needs. This type of simulation also assumes that the distribution of returns is normal. Should actual returns not follow this pattern, results may vary.

Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while returns and principal invested in stocks are not guaranteed. Diversification does not eliminate the risk of experiencing investment losses. Holding a portfolio of securities for the long term does not ensure a profitable outcome and investing in securities always involves risk of loss, including the risk of losing the entire principal.

About the data

Stocks are represented by the Ibbotson® Large Company Stock Index. Bonds are represented by the five-year U.S. government bond, inflation by the Consumer Price Index, and mutual fund expenses from Morningstar. An investment cannot be made directly in an index. The data assumes reinvestment of income and does not account for taxes or transaction costs.

Take the first step toward achieving your financial goals.

Learn More: Building Your Nest Egg: An Emergency Fund

Read more about how to keep your retirement years safe with tips to build your nest egg with an emergency fund.