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Contrary to popular belief, the insurance coverage you will need
most is not life insurance, it is disability insurance. The
Health Insurance Association of America estimates that people
between the ages of 35 and 65 are six times more likely to become
disabled than to die. The average duration of a disability that
lasts more than 90 days is five years. So you can see, disability
coverage is vital.
One of the reasons most people don't buy disability insurance is
the high premium, the amount you pay to the insurance company in
return for coverage. Another reason is many employers offer
disability insurance-99% of large companies but less than 25% of
businesses with fewer than 50 employees. There may be holds and
limitations on the employer-provided coverage, be sure to check
the details and decide if you should buy an individual policy to
In general, insurance experts recommend that disability insurance
cover 60 to 70% of your regular income. Benefits should start 90
days after you become disabled(your savings can presumably carry
you until then and it results in significantly lower premiums
than 30 or 60 day policies) and continue to age 65 is needed(by
then your Social Security and pension benefits should kick in).
Benefits from a policy you paid for yourself is tax-free while
benefits from an employer-paid policy is taxed as regular income.
On option to look for is a residual-benefits provision. It
supplements your income if you are well enough to go back to work
but unable to work at full capacity yet. But it may cost 20 to
The insurance company can cancel your policy unless yours is
"guaranteed renewable" or "noncancelable." Guaranteed renewable
policies can only be canceled if you miss premium payments.
Noncancelable also guarantees that your premiums can't be
increased during the life of the policy.
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