Disability Insurance An Effective Form of Debt Protection

Okay, so you did your research, created a budget and executed a savings plan. You are living well within your means and are looking forward to a comfortable retirement. All in all, things are going along very smoothly and then tragedy strikes. You suffer a debilitating sickness or injury that is going to keep you out of work for an extended period of time. Although you have accumulated a fair amount of money into an emergency fund, this is only meant to last for a relatively short period. When this money runs out how will you pay your bills? Running up credit cards and accumulating high levels of debt is not a desirable solution but unfortunately this is often what happens. However, there is another option and that is disability insurance.

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Disability insurance is designed to replace a portion of your normal income if you are unable to work due to sickness or injuries. Once the disability occurs the individual enters what is called an elimination period. This is a set period of time that must elapse before the policy will begin making payments. The amount of the payments will vary but higher pay out amounts carry higher premiums. Premiums will also increase if any riders are added on to the basic policy. A rider is an extra benefit that is attached to the basic coverage.

Short Term Disability Insurance

It is important to remember that people suffering from short term sickness or injuries will not generally meet the elimination period qualifications for disability insurance. Ideally an individual should have enough in savings to cover all of his expenses for anywhere from 3 to 6 months. However, an alternative to accessing an emergency fund would be the use of short term disability insurance. This financial product promises to pay a certain percentage (i.e. 50%) of your normal weekly salary if you become disabled. Policies will cap the amount of time that an individual can collect the benefit.

Encountering physical hardships can be very difficult but it should not cause you undue financial stress. As with all financial situations proper planning is the key. This planning should include, at the very least, a consideration of disability insurance.

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.