Before determining how much disability insurance a person MUST have, it is important to first understand how much coverage a person CAN have. While consumers may think benefit levels should be unlimited, the insurance industry is regulated and insurance companies are careful about the coverage they provide. After all, if someone could get a higher income at home while claiming disability benefits, they would have no incentive to return to work when possible.
The amount of disability insurance that an individual can take out depends on income, profession and any existing collective & individual coverages. Most people can protect up to 60% of their gross income. However, the higher a person’s income, the lower the percentage that can be insured. For example, a person who earns $50,000 a year will have no problem getting 60% income protection, while a person who earns $500,000 may only be able to get 40-45% income protection.
Now that we know that the amount of disability insurance that a person can purchase is limited, we can determine how much coverage a person should have. While the exact benefit amount a person should have is subjective, there are certain values that should be strongly considered and may create a lower limit on the minimum amount a person should have. Every consumer should have adequate disability insurance to cover all living expenses (rent, mortgage, utilities, etc.), liabilities (car payments, student loans, commercial debts, etc.), insurance premiums (life, home, auto, liability, etc.) and savings (mainly pension savings).
The importance of having adequate coverage during the buying process is easily underestimated – the truth is that disability insurance does not come cheap. However, you will never hear a person who has had to file for disability benefits say, “Wow, I probably didn’t need this extra $1,000 in monthly benefits”. Most people go to work every day because their standard of living depends on the income they earn. That is why it is important to make sure that this cover offers sufficient protection when purchasing it.
Whether you are a doctor, teacher, police officer or other professional, a debilitating injury or illness that prevents you from working and earning an income can be catastrophic. Unless an individual is independently wealthy, it is important to consider getting adequate disability insurance.