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How can a disability insurance policy protect your income?

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We insure all kinds of things, from our homes to our cars to our life. However, many people don't insure one of their most important assets -- their income. That's what disability insurance does. It pays a portion of your income if you are unable to work due to illness or injury. The average disability insurance policy pays about two-thirds of a policyholder's income.

No one expects to become seriously ill or disabled. However, the Council for Disability Awareness reports that over a quarter of 20 year-olds will suffer a temporary disability at some time during their working lives.

Even if you are fortunate enough to have enough savings to last for six months without your income, that may not be enough. The average claim for long-term disability insurance is nearly three years.

Some people are fortunate enough to be able to get disability insurance through their employer. However, if your employer doesn't offer it, you should consider getting an individual policy. Either way, it's important to know what you're signing up for. There are short-term and long-term policies. Short-term ones generally pay for just 90 days or less. Besides the length of time the policy will provide some income replacement, here are some important questions to ask:

-- What percentage of my income will be paid?-- How long do I have to wait before the payments begin? (This is known as the elimination period.)-- Will the benefits be paid on pre-tax or post-tax income?-- Does it pay claims if I can't do my own job or only if I'm unable to do any job?

If your employer doesn't offer a plan, it's advisable to look for an individual policy. Remember that the bills won't stop coming in just because you're injured. Even if your spouse is still working, the loss of one paycheck can send a family into a downward financial spiral from which you may never recover.

Source: Daily Finance, "The Most Important Asset You're Forgetting to Protect" Mary Beth Storjohann, accessed Mar. 10, 2015

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