From time to time events will occur in your life that create a need for you to reevaluate your disability insurance coverage. Having a child, getting married, buying a home, changing jobs and planning for college are just a handful of examples. This section examines a few of the most common types of life events that generally trigger the need to reassess your disability insurance needs.
Changes at workIf you work for a company that provides its employees with group disability insurance, benefits typically replace a fixed percentage of your salary, say, 50%. So if you get a raise, your disability benefit will automatically adjust upward. An exception would be if you are a fairly well compensated employee and your income already places you at your company’s maximum monthly cap for disability payments, often set around $4,000 or $5,000. In these instances, if you get a raise and you’re concerned about the loss of income that would occur if you were to become disabled, you can always seek to supplement your group coverage with an individually purchased policy.
Changes at homeIf you become disabled and are unable to work, you’ll be in a financial pickle if you don’t have a source of replacement income to help make ends meet. That need becomes even more pronounced when other people become dependent on your income like, say, your new spouse or newborn child. A less obvious example might be if an elderly parent becomes dependent on your income. So every time there’s a change in your family situation, either in your immediate or your extended family, make sure you take a minute to carefully consider whether that change should trigger a reevaluation of your disability insurance needs.
Buying a homeAs your income increases, you should consider increasing your disability insurance coverage because you would have to replace a higher amount of income to keep pace with the higher standard of living to which you and your family have become accustomed. When you buy individual coverage, it sometimes makes sense to pay extra for something called a Future Purchase Option rider. This provision ensures that health issues that may have arisen since you purchased your policy won’t prevent you from increasing your coverage.
You’ll also want to consider buying individual disability income insurance (or increasing existing coverage) every time you assume a significant amount of new debt. The bills won’t stop just because you’ve been in an accident and are unable to work for a period of time. So you’ll need a source of replacement income to make sure that you’ll still be able to make your mortgage or car loan payments.