Closing the income protection gap with disability insurance

The ability to earn an income is one of your most valuable assets. It allows you to have a car and home, support your particular lifestyle and work toward future goals such as your investments and retirement savings.

A long-term illness or injury that prevents you from working could wreak havoc on even the soundest financial plan. A disabling illness or injury stops income, imposes additional costs, prevents you from building a retirement nest egg and can easily drive you into serious debt.

Disability income insurance provides a source of replacement income if you're unable to work due to an illness or accident. It can provide you with cash to pay your mortgage or rent, buy groceries and meet your daily living expenses, as well as pay for rehabilitation or other assistance you may need to return to work. This includes providing the financial resources you need to continue to invest in your retirement strategy.

Why own an individual disability income insurance policy?

• It can help close the employer-sponsored disability income insurance protection gap.
• It's 100% portable — your coverage will follow you no matter how many times you change jobs.
• You can customize your policy to fit your financial goals.

The risk of experiencing a disability may be greater than you think.

It's hard to imagine becoming disabled, yet illnesses and accidents can happen to anyone at any time. Consider these startling statistics:

• About 30 percent of Americans age 35 to 65 will suffer a disability lasting at least 90 days at some point during their career, according to the Health Insurance Association of America.
• One in seven workers can expect to be disabled for five or more years before retirement.¹

The risk of disability is greater than the risk of premature death, which people routinely insure. And although most people associate disability with serious accidents, the majority of disabilities are actually caused by illness. Once disabled, many people remain unable to return to work for several years, if ever.

The real cost of disability.

For many, a sudden interruption of income could have serious consequences on your financial situation. Disability is behind nearly half of all mortgage foreclosures and a significant number of personal bankruptcies, however many workers assume they're already covered through Social Security, worker's compensation or employer-sponsored group plans.²

In addition to loss of income, a disabling injury or illness could also lead to medical bills, physical rehabilitation, modifications to your car or home or other unforeseen needs that can be expensive. A disability can also have a dramatic effect on your ability to save for retirement and can affect other employee benefits, including medical benefits.

The LIFE Foundation conducted a study that found that 70 percent of working Americans couldn't make it one month before financial difficulties set in. More than one in four Americans couldn't make it a week. If you're still considering if your income is worth insuring, evaluate how long you'd last without your paycheck before it would become difficult to meet everyday expenses.

To help determine how a disability could affect your immediate and long-term financial goals, ask yourself the following questions:

If you answered "yes" to any of these questions, you can see how your savings may not last as long as you think, especially if a disabling illness or injury increases your expenses. What's more, the inability to save and invest for retirement today can have a long-term impact on your dreams for retirement.

Limitations of employer-sponsored coverage.

When it comes to helping you secure your income, employer-sponsored coverage offers some financial relief if you should become disabled. These group policies are relatively inexpensive to purchase and generally remain in effect as long as you continue to work for the company. In addition, there is no underwriting, meaning you automatically qualify for coverage.

However, only 36% of all full-time employees have access to long-term disability income insurance through their employers and group policies typically replace only 60% of your base salary. They generally do not cover bonuses or other types of incentive compensation that may represent a significant percentage of your income, and the benefits you receive may be fully taxable. What's more, if you leave your job, you generally can't take your employer-sponsored disability income insurance benefit with you and may find yourself unprotected at a time when you need it most. Check with your employer for specific details about your coverage.

Social Security alone will not meet your needs.

The federal government administers a disability insurance program that covers most workers, but qualifying for benefits can be difficult and payment levels are fairly modest. Unfortunately, relying on Social Security alone may leave you at risk. Social Security disability benefits are one of the most difficult to qualify for — according to the Social Security Administration, only 35.1% of all applicants actually received benefits after their initial claim.³

Not only is it difficult to qualify for Social Security disability benefits, there is also a long waiting period before you can receive them. Social Security benefits are designed to replace only a small part of your income and should not be relied upon to cover your expenses.

Owning your own individual disability income insurance policy provides several benefits:

• It can help close the protection gap. Whether or not you have employer-sponsored disability income insurance, owning your own policy can help ensure that you have the right amount and type of coverage to fully meet your needs. In addition to helping cover daily expenses, it can also help ensure you have the resources to continue to save for retirement and other future goals.
• It's portable. Even if you change employers, you'll have the protection you need. You never need to worry about losing coverage if you change jobs.
• You can customize your policy to fit your financial goals. There are several types of disability income insurance, each with a variety of features and benefits. Some policies provide for an annual cost-of-living increase, while others may enable you to receive benefits if you return to work, but are unable to perform in your current occupation. Generally, most individual plans will pay between 40 – 65% of your pre-disability gross salary. When paid with after-tax dollars, benefits are received income tax-free.

Keep in mind that disability income insurance coverage varies in availability based on your occupation, and coverage can get pricey depending on the policy's features and benefits.

The bottom line? Disability income insurance is a smart way to ensure that a serious long-term injury or illness does not prevent you from receiving an income or reaching your financial goals.

Get the right protection for your needs.

For help assessing your disability income insurance needs, contact your Ameriprise financial advisor. Your advisor can help you identify the right amount and type of disability income insurance you may need and help ensure that you stay on track to reach your long-term retirement goals. If you don't have a financial advisor, contact us at 1-800-AMERIPRISE or search for an advisor in your area.