You value your assets, but how much money do you spend to protect them? Most of us have automobile insurance, homeowners insurance, and, possibly, additional coverage for items or collections of particular value. While your assets may be worth a sizable amount, their liquidity and income-producing value may be negligible.

Your true wealth, and perhaps your greatest asset, comes from your ability to earn an income. Your income pays for all of your living expenses, including housing, transportation, food, clothing, and recreation. Additionally, you must pay for property insurance, as well as for premiums on liability and life insurance policies. Examination of your monthly expenditures will reveal other items that comprise your monthly expenses.

Think about the Unthinkable
If your income suddenly ceased, how would you pay the expenses mentioned above? While no one likes to consider the possibility of becoming disabled through an illness or accident, the risk of disability does exist and should be given full consideration as you plan for your financial security.

What if…?
Should you suffer a disability, you need to know how you will continue to meet your financial needs. Would you have sufficient funds to support yourself and your loved ones during a six-month disability? How might a disability affect your ability to borrow money? How quickly could you liquidate some of your assets to provide needed cash? Perhaps your spouse can provide the necessary income to support your family, but the burden of being a spouse, parent, private caregiver, and income earner can be overwhelming.

Social Security will most likely not replace all of your lost wages in case of a serious illness or accident. You must be severely disabled to qualify for Social Security disability benefits, and it may be some time until payments begin.

Your alternatives for income may, at best, be limited. Thus, you need a source of income on which you can depend. The bottom line: If you lose your ability to earn income, you jeopardize your future financial security.

Know Your Options
Some employers offer group disability coverage. However, most group plans have an upper limit or “cap” on the benefit amount. Consequently, the percentage of pre-disability income covered under a group plan may be insufficient to meet your income needs. Moreover, since only base salary is covered in many plans, income in the form of pension and profit-sharing contributions may be left unprotected during disability. Also, with a group plan, you are not the owner of the policy, which leaves your coverage vulnerable to termination should you change employers. Finally, if the benefits are provided under an employer-paid group plan, they are taxed as ordinary income, which further reduces the actual amount available to cover your living expenses.

One solution to these limitations may be to supplement your group disability plan with a disability contract that you own and is tailored to meet your needs. An individual disability income policy can help close the gap between your pre-disability level of income and the benefits provided under your group plan. In some cases, pension contributions may be included as insurable income. If premium payments are made with after-tax dollars (as is usually the case), the disability income would be free of income taxes, further enhancing the value of the benefits received.

Clearly, it may be to your advantage to consider purchasing an individual disability income insurance policy. The right policy can provide financial security to help mitigate the potentially devastating effects of a major accident or long-term illness.

Donna Herlihy, Advisor, is with MassMutual’s Central New York Agency in Syracuse, NY. You can reach Donna via e-mail at dsherlihy@finsvcs.com or by calling 315-470-1889.

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