You've worked hard, and you want to protect your income and your family’s lifestyle. It's smart to evaluate your family's total insurance needs each year to make sure you have the right amount and type of insurance to cover unforeseen circumstances that can derail a financial plan.
What is life insurance, and how does it work?
Life insurance helps protect your loved ones by providing a (tax-free1) payment to your beneficiaries when you die. This money can help cover expenses and provide financial security to those left behind. Policies can be purchased by the person whose life is to be insured. They can also be taken out by a spouse or anyone able to prove they have an insurable interest in the insured person.
Considering life insurance? As you move through different stages of life, your insurance needs may change. For example, if your family is growing, you might want to increase the amount of your life insurance to protect your loved ones. Conversely, many people find as their net worth increases and their children reach adulthood, they need less life insurance.
Have life insurance? It’s a good idea to review your coverage regularly as your insurance needs may change over time, and you can confirm your beneficiaries are current. If you decide to reduce your life insurance coverage, you may redirect those savings to other critical needs as you age such as long-term care or other health care cost.
Although life insurance generally falls into the categories term and permanent, there are many different types of policies. If you are interested in getting life insurance or changing your policy, it's sensible to consult with your insurance agent, financial advisor, or insurance company representative to help you choose a policy with features that fit your needs.
What is disability insurance, and how does it work?
Disability insurance helps protect your income if you're unable to work due to a major illness or injury. Disability insurance replaces a portion of your income helping you maintain financial stability while you recover. It usually begins after sick and vacation pay, family leave, and any other paid leave has been exhausted.
The primary types of disability insurance are short-term and long-term. Each offer distinct terms and coverage guidelines that are essential to understand before purchasing a policy. Though short- and long-term coverages are distinct, they’re also complementary programs, designed to cover different types of disability.
- Short-term disability (STD) insurance: A short-term policy is usually designed to replace 80% or more of your gross income for a short duration of time. For example, if recovery from surgery will keep you out of work for several weeks or months, short-term disability can replace the income you lose while you're out of work. You typically need to wait for an elimination period—5 or 10 days—before the coverage begins. Additionally, the STD benefit amount can potentially cover up to 100% of your income and typically lasts for 3-6 months, depending on your policy. Employers may offer short-term disability insurance to their employees, and many subsidize that coverage (some pay the full cost), though the subsidized portion may be taxable to the employee.
- Long-term disability (LTD) insurance: What happens if your short-term disability coverage runs out and you're still out of work? In that case, you'd turn to long-term disability, which typically begins after an elimination period ranging from 3 to 6 months, or whenever STD insurance ends (which depends on the policy). Long-term disability policies are different from short-term, typically covering only about 60% of your salary. Fortunately, the coverage can last for years—even through the rest of your life, depending on the design of the policy.