Disability insurance

Disability insurance replaces part of your income if you are unable to work because you are ill or have been injured. Most policies pay a percentage of your salary — often 50% to 70% — up to a predetermined limit, such as $10,000 a month.

While the premiums tend to be expensive and most policies use fairly strict definitions of what it means to be disabled, this type of insurance can make a major difference to your financial security should the unexpected happen. In this vein, you’ll want to discuss the advantages of a type of disability insurance called own-occupation, or own-occ, with a knowledgeable professional. Own-occ policies pay benefits if your disability prevents you from doing the skilled work for which you are trained. Other policies often won’t pay benefits if you can do any type of work at all, even work that pays much less than you formerly earned.

In addition to the income it can replace, disability insurance can also help you pay medical bills, which may increase as a result of the same problem that limits your ability to work.

Louise Yamada,
Managing Director,
Louise Yamada Associates

Louise Yamada discusses another benefit of being insured.

From a financial planning perspective, another benefit of adequate insurance is that it prevents you from having to use up the assets you have been accumulating to meet your long-term goals — goals that are likely to continue to be important to you and your dependents.

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