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Disability Insurance: the Cornerstone of All Financial Plans

Many believe wealth accumulation is the most important aspect of a financial plan. However, looking towards your financial risks and determining if you have proper disability insurance coverage should be priority.


Disability Insurance is a form of insurance that pays a percentage of the policy owner’s salary if they are unable to work.  This type of insurance, which is offered through many employers, is the cornerstone of any financial plan because if worse comes to worse, and the policy owner cannot work, either the policy owner or their beneficiary will receive some sort of income.

In most cases, policies do not cover the entire salary of the policy owner; instead they pay out anywhere from 50-70%, depending on the policy. Everyone should know if they receive this benefit from their employer or not, and determine if in the chance they are unable to work, the payout percentage will cover their needs.  If not, it would be a good idea to purchase a private plan to supplement their income.  Do not purchase a policy from a private institution thinking that you will receive 50-70% from them as well as your employer’s plan.  The private policy will look at your existing plan and could only offer you an additional 10%, if even that high.  Because the payouts of employer plans are technically income, they will be taxed as such.

When creating a comprehensive financial plan for yourself and your family, you need to realize that your biggest asset is your ability to work.  Think of all the income potential you have, especially if you are young and willing to put in the time.  As you create this plan, understand that before you think about wealth accumulation, you should cover any risks that you might incur first.  Getting injured to the point where you cannot work, or becoming terminally ill are definitely risks that should be considered.

Look into your employee benefits, or get in touch with your employer’s Human Resources department if you are unsure if you qualify for this benefit.  Additionally, contact your financial advisor to determine if you need additional disability insurance coverage.

Sean is the owner of a financial planning business with Northwestern Mutual. His areas of expertise include financial planning, retirement planning, disability income planning, long term care planning and special needs planning.

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