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AUGUSTA’S MOST SALUBRIOUS NEWSPAPER • FOUNDED IN 2006
AUGUST 23, 2013
The Money Doctor Becoming Disabled is More Common Than You May Think Protect Your Future with Disability Insurance
I The human body overall is 70% water • Blood is 85% water • The brain is 80% water • Muscles are 75% water • Cells are 90% water • An estimated 75% of Americans are chronically dehydrated HOW MUCH WATER ARE YOU DRINKING EVERY DAY?
n planning for our financial futures, we often assume that we can continue earning our current salary, and possibly more, until we choose to enter retirement. However, leaving the workforce can be forced upon us as opposed to a choice we make when we feel we are financially ready. The numbers are staggering for individuals who can no longer work due to incurring a disability. According to the U.S. Social Security Administration, more than 1 in 4 20 year-olds will become disabled before they retire. In addition, a healthy 35 year old working an office job has between a 21% and 24% chance of becoming disabled for 3 months or more at some point during their career. Risk factors that increase these percentages include obesity, tobacco and alcohol use, high risk activities, substance abuse, and numerous health issues. Fortunately there is a way to help replace lost income in the event you can no longer work due to an accident or sickness: disability insurance. Disability insurance primarily takes two forms – short-term and long-term. Both types of insurance provide income in the event of an accident or sickness, even if the accident or sickness is not work-related, which is what distinguishes disability insurance from workers’
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compensation insurance. Short and long-term disability insurance can be purchased in the same way and often together. Many employers or professional organizations offer group disability insurance. Due to the volume of individuals signing up under group plans,
1 in 4 20-year-olds will become disabled
If the premiums were paid for using after-tax dollars, typical of a privately purchased plan, then benefits are non-taxable. Also important in determining a sufficient benefit amount is the amount of emergency savings you have on hand and ongoing debt obligations, such as mortgage payments, that will need to be satisfied in the years to come. There are other factors that will affect the cost of the premiums you pay for your disability insurance. The first factor is the elimination period, which is the time period from which an accident or illness occurs and the time period in which payments begin. All other factors being equal, a plan with a longer elimination period will have lower premiums than one in which payments begin sooner. Your emergency fund should always be sufficient to cover costs during this time period. Another factor that affects your premiums would be an “ownoccupation” plan. The premiums for own-occupation policies are generally higher due to the fact that this plan will provide benefits if you are unable to perform most of the functions of
this option is often less expensive than a privately purchased plan. However, if your employer does not offer a group plan, insurance can be purchased individually through numerous insurance agencies. Most longterm disability insurance will provide around 60% of your pre-disability earnings. In determining if this benefit will be sufficient, it is important to understand the tax requirements of these benefits. Although special situations may arise, determining the tax implications for disability benefits is generally simple. If the premiums for the policy were paid using pre-tax dollars or paid for by your employer and not included in your income, Please see DISABILITY page 10 then the benefits are taxable.
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