Financial Planning - 4 MUST To Plan For your Financial Freedom, Part 3 : Replacement of your income

December 28, 2005 · Filed Under How to Manage Money

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This is the part 3 of the series 4 MUST to plan for your financial freedom, this series is written base on Liz Pulliam Weston - 4 ways to protect your financial freedom . You may read my Part 1 and Part 2.

Disability insurance: Replace your income

You may think your biggest asset is your house or your 401(k), but actually it’s your ability to earn money. And chances are you don’t have enough protection should you be hurt or become sick and be unable to work for more than a few weeks.

Your state’s workers compensation fund, for example, usually provides benefits only if you get hurt on the job. Your employer probably provides some kind of short-term disability coverage, but the checks will end after three months to a year. If you can’t work for longer than that, Social Security may provide some benefits — but only if you’re so disabled that you can’t hold any job. So unless you don’t mind switching from your current career to one flipping burgers or telemarketing, you probably want to have a long-term disability policy.

Unfortunately, you may find long-term disability policies are expensive and tough to get if your employer doesn’t offer this coverage, said Raymond Parry, an account executive with James P. Bennett & Co. in Santa Monica, Calif. A 35-year-old white-collar worker looking for a $5,000 monthly benefit would pay $2,500 a year or more for an individual policy, assuming she was in perfect health, Parry said. Some people who try to get policies on their own, Parry said, find they don’t meet the disability companies strict underwriting criteria.

It’s much easier to get a policy through your employer, if that’s an option. About 25% of the nation’s workers have long-term disability coverage through their jobs, U.S. Department of Labor statistics show. Either their company pays for the insurance, or the worker can buy it at reasonable group rates. The larger the company, the more likely it is to provide this coverage, said Joseph Luchok, spokesman for the Health Insurance Association of America in Washington, D.C.

If your employer doesn’t offer the coverage or you’re self-employed, your next best bet is to see if you can buy a policy through one of the professional or trade organizations to which you belong. If not, you can try to form your own group of at least 10 people to qualify for a discounted rate, Parry said. The insurance agent said he has formed such groups for small business owners who didn’t have enough employees to qualify for group rates on their own.

If your only option is buying a policy on your own, make sure to get enough coverage. Most insurers won’t provide benefits that replace more than 60% to 70% of your income, but opt for the highest percentage you can get. You can buy policies that cover you for the rest of your life, but they’re often prohibitively expensive; look for one that pays benefits until age 65.

Everyday we need money to survive! Yes this is the truth and the fact that all of us know. Even a 5 years old child also know this fact. Everyday we wake up and we must think how to earn some income for us or our family. But what if, I said what if, you lost the ability to make the same income for your family? Case will be worst if you are the main income source and all your family depend on you. That’s why most of the time, when people consult my mentor about the financial planning for future; my mentor will highly recommend them to invest some money into their insurance to protect themselves and their money. My mentor also does the same thing, even though he is financial free. According to him, this will be a protection to you and your love one when anything happens on you. We can’t predict the future but we can prepare for it!

Tags: Financial Planning