How to prevent a physical disability from becoming a financial catastrophe

I recently ran into a friend after not having seen him for a while. When I asked how he had been, he said, “I’m just getting back into the swing of things. I had hurt my back, and was out of commission for a good few weeks. I’m all out of vacation time, but at least I’m feeling better.”

He was lucky not to have lost more than vacation days.

Statistically, one person in four will have a disability for at least a period of time. If that should occur, what happens to your income? And if income were to stop, what happens to everything else? What if the disability lasted a couple of years, instead of just a few weeks?

One way to address this risk is with disability insurance, which covers a portion of one’s income during a period of disability. That way, at least the basics are taken care of.  Here are three considerations when evaluating disability insurance.

1. What degree of disability is required for the policy to kick in? For example, does it require the inability to do a current job, or to do any job? Or is it measured through other life functions?

2. How much time must you cover before coverage kicks in?

3. How much income will the policy replace during the covered period, and if your income increases during the life of the policy, can the amount of coverage increase too?

Guarding against unexpected events that could threaten income or savings is an important step in building a legacy. Given how frequently disabilities are reported, it is prudent to cover the potential for lost income adequately.