DO YOU UNDERSTAND DISABILITY INCOME INSURANCE?
By Jonathan A. Silberstein
Cowan Financial Group
Massachusetts Mutual Life Insurance Company
Do you understand your disability income insurance coverage? Many of us don't. In fact, many of us aren't even sure if we have it. This lack of understanding may be creating a significant gap in your financial security.

The first priority for most of us is to make sure that we have car insurance, homeowners insurance and life insurance. Ironically, none of this would be relevant if we were unable to earn an income. Therefore, the need to insure your most valuable asset-your ability to earn a living, should be at the top of your priority list.

In some cases employers offer group long-term disability insurance to their employees, but like many Americans you may not have taken a very close look at this taxable benefit offered by your company and assumed that if you were to become sick or hurt everything would continue as it does today.

Unfortunately, this is not the case. Most employer-sponsored group long-term disability plans cover only 60 percent of your annual salary and do not include bonus wages or commissions when determining the monthly benefit you would receive.

If you are the average American making $40,000 a year or $2,400 a month (assuming a 28% tax basis), your income would immediately fall to $24,000 a year or $1,440 (net) a month if disabled. And, if you are a more highly compensated individual, that paycheck that your family relies on would be even more significantly impacted than the $40,000 a year employee thanks to the benefit caps imposed by most group disability insurance plans.

For example, an individual making $150,000 a year or $9,000 a month (assuming a 28% tax basis) should count on a disability benefit of 60 percent of their current gross income or $5,400 a month net. But, due to the benefit cap of his or her group plan, the monthly benefit amount is limited to $5,000.

How would your family hold up if your income was reduced by 40 percent? According to Baby Zone Inc., in 1999, 74 percent of American households rely on two incomes. If one income was reduced or removed altogether, how would that impact your standard of living? What if you currently depend on only one income? Questions such as "how will we pay our mortgage, cars, utilities and food?" immediately come to mind. But what about other questions like retirement savings and your children's education fund, not to mention the cost for increased medical bills or accommodations that may need to be made if a disability occurs. Where will the money come from if the income you depend on is gone? How do you protect yourself in the event of a disability? The same way you protect your home, cars, even your life, with insurance-disability income insurance.

By purchasing individual disability income insurance, if you currently do not have any DI coverage in place, or a supplemental policy to enhance your current group long-term disability plan, you're taking the steps necessary to fill the gap in your financial portfolio.

Your financial services professional or insurance agent can assist you in determining the amount of coverage you need to pay bills and expenses if you are unable to work. He or she can also explain the important components when choosing what type of policy, benefits and riders might be right for your individual needs. Be sure to ask about how the insurance company defines disability; the amount or premium you would pay each month; how much money you would receive each month and the period in which you might have to wait before receiving that money; if the policy is guaranteed not to be cancelled as long as you paid monthly premiums until you turn 65; if the rates would be locked in and what types of optional riders would be right for you.

Remember, a comprehensive financial portfolio is only as good as the income that supports it.

You can contact Jonathan A. Silberstein, Cowan Financial Group at 530 Fifth Avenue 14th Floor, New York, NY 10036, 212-536-8743.


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