Protecting What May Be Your Most Valuable Asset

Today’s repeat guest blogger is Sarah Tolson, a Certified Financial Planner with her office in Danville. Her bio and contact information are below.

If you are young and healthy, you might think your chances of becoming disabled are fairly slim. And you wouldn’t be alone in your belief: 64% of workers believe they have only a 2% (or less) risk of suffering a disability that could sideline them for three months or longer.1

But statistics tell a different story: 43% of 40-year-olds will suffer at least one long-term disability (90 days or longer) before age 65.2 Despite this risk, 38% of working Americans say they would be able to pay their living expenses for only three months or less if their incomes were interrupted; 65% would not be able to cover expenses for one year. These findings become all the more alarming when you consider that the average long-term disability lasts for two and a half years.3

If you wouldn’t think of going without insurance coverage for your home, health, or car, it doesn’t make much sense not to protect what may be your most valuable asset: your ability to earn an income.

A Policy That Can Protect

An individual disability income insurance policy can help replace a percentage of your salary, up to the policy limits, if you should suffer an illness or injury that makes it impossible for you to continue working. The benefits can continue until you recover or for a predetermined number of years, whichever comes first. If you pay the premiums yourself, the benefits usually are not taxable. Some policies will pay if you can’t perform your current occupation, whereas others will pay only if you cannot perform any type of job.

Many workers have some type of short-term group disability coverage through their employers. Group plans rarely cover as much as the 70% to 80% of income that individual policies typically offer, and the benefits from group plans are taxable to the extent that the employer pays the premiums.

Your Future Could Be at Stake

In the absence of an adequate, long-lasting source of disability income, you could be forced to use your retirement assets to pay living expenses and medical costs. If you have to withdraw assets from a tax-deferred retirement account, the withdrawals may be subject to a 10% federal income tax penalty if you are younger than 59½ (depending on the severity of the disability), as well as ordinary income taxes. Even worse, tapping your retirement assets could interfere with progress toward your retirement goals, creating the possibility that you might not be able to attain the retirement lifestyle you envisioned.

The appropriate disability income strategy may help reduce the financial consequences if you lose your income because of an illness or injury.

1, 3) Council for Disability Awareness, 2010
2) 2010 Field Guide, National Underwriter

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Sarah Tolson, Certified Financial Planner™ recipient, is passionate about building the next generation of her family’s legacy of personalized financial planning; and she is committed to helping professionals create wealth-building plans tailored to their age, goals, and life circumstances.
4115 Blackhawk Plaza Circle, Suite 100, Danville, CA 94506
phone: (925) 736-3024 / fax: (925) 736-3026



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