If you’re like most people and don’t have disability insurance, you could be just an illness or injury away from financial hardship — especially if you have a family that relies on your income.

And, while you may not be able to prevent an illness or an injury due to an unforeseen accident, you can prevent the negative financial impact of such a life-altering event for as little as 2% or less of your paycheck.

Disability insurance replaces your regular paycheck when you are unable to work because of an illness or injury. Most insurance companies will only offer coverage, which will at most cover one-half to two-thirds of your regular paycheck. Because the benefits are not usually taxed however, you might find that the disability payment is not a lot less than your take-home pay.

There is usually a short lag from the time you qualify for the benefit to the time that you receive a benefit payment – be sure to make adjustments early to accommodate this.

First, look for a company with an “Excellent” (A-) or better rating with the A.M. Best rating service (www.ambest.com). You want your insurance company to be around and able to pay claims in the event of a huge catastrophic event such as “September 11th.” The better the rating, the stronger the insurance company is financially to get through tough times.

Second, look at your savings account. How long can your family go without your paycheck? The more savings you have, the longer you can afford to go without a paycheck. If possible, choose a plan that requires a longer wait before you are eligible to receive a disability check. Doing so will lower your premium payment.

Third, after you have decided on a waiting period prior to receiving benefits, then look for the following:

• Coverage all the way to your normal Social Security retirement age. Such a policy will provide permanent benefits for total disability until you become eligible for normal Social Security retirement benefits.


• Cost of living adjustment benefit. This type of policy will pay an increasing benefit to help overcome what inflation would do to your benefit check.


• Partial disability. This policy would pay a benefit if you recover from a total disability and can come back to work part-time.


• Residual disability. Such a policy will pay a partial disability benefit, even if you should never become totally and completely disabled.


• Coverage for your own occupation. A benefit is paid if you are well enough to work, but not well enough to return to work in your pre-disability occupation.


• Guaranteed options to purchase additional coverage. This type of policy gives you the right to purchase additional disability coverage, regardless of your insurability — perfect for young professionals who will likely see significant increases in their earnings down the road.

While some of these benefits may be automatically included in a disability policy, most are options. If after you have looked at your options you find it is a little out of your budget, don’t be discouraged. Work with your insurance agent to find the most you can get within your budget – even a $500 monthly benefit can be of great financial assistance to a person who is completely out of money. If you are not able to buy full protection, you can correct this by growing your savings account and increasing disability benefits when you can better afford it.

And remember – the sooner that you purchase disability insurance, the cheaper it is. Most policies do not raise your rates due to an increase in your age, so you can lock in lower premiums the sooner you start.