Disability Insurance For All Phases of Life

I recently had the opportunity to present on this topic at the 2018 AICPA ENGAGE Conference as part of the Advanced Personal Financial Planning curriculum. The session also covered the disability insurance need, risk, solutions, and planning applications. To learn more about the conference please visit: https://www.aicpaengage.com/engage2018/pfp2018

Income protection is essential throughout your working years for various reasons. Without proper disability insurance coverage protecting income, everyday lifestyle and retirement goals can go off course. Here are a few reasons why income protection is needed at each stage of your working years:

Establish Phase (under age 30)

• Future earnings—financial potential is greatest due to the long-time horizon to retirement.
• Debt—student loan and credit card debt is common among recent graduates.
• Lack of savings—many young workers are unprepared for a short-term emergency with added expenses in addition to routine monthly financial obligations.

Advancement Phase (age 30–45)

• Multiple Employers—the portability of disability insurance coverage should be a consideration when moving from one employer to another.
• Housing—while many debts may be paid off, a new mortgage may be added to financial obligations.
• Family—a partner and children may create added lifestyle expenses.

Maintenance Phase (age 45–60)

• Peak Earnings Years—income levels likely reach the highest potential, which also means a greater risk if unable to work.
• Sandwich Generation—workers may now be caught between paying for college and being responsible for the caregiving of parents, often with a cost.
• Disability Risk and Duration—a higher risk of disability occurs during this phase, compared to the advancement phase. The average claim length is also longest during these years. 

“Life doesn’t always go as planned...”

Pre-Retirement Phase (Age 60+)

• Retirement Savings—life doesn’t always go as planned and income could be needed during these years to boost retirement savings and take advantage of catch-up retirement contributions.
• Health Issues—despite best efforts, an unexpected illness can potentially end a career. Fortunately, disability insurance coverage may pay until 65, 67, or longer depending on the policy, and the age when the disability occurs.

Disability insurance is a vital component to a financial plan. The amount of coverage needed depends on earnings and lifestyle needs, but a good target is to replace 60% of after-tax income. It’s important to make sure proper coverage levels are obtained and reviewed during all phases of life. Disability insurance can help with debt obligations, keep a family’s lifestyle on track, and continue savings for retirement. It doesn’t only protect financial obligations and goals, it also provides emotional benefits by allowing the individual to focus on recovering from the disability. When reviewing job opportunities throughout working years, one should inquire if long-term disability (LTD) insurance is provided or available for purchase.

There are many considerations when evaluating and designing an income protection plan. An advisor can help consult on the best solutions for each phase of your life.