“It pays part of your income if you can’t work because of an illness or injury,” explains Barbara Marquand of nerdwallet.com, referring to disability insurance. “Your most valuable asset isn’t your house, car, or retirement account. It’s the ability to make a living.”
There are two main types of disability insurance:
- Short term disability insurance typically replaces 60%-70% of base salary for a period ranging from several months to one year.
- Long-term disability insurance replaces 40% -60% of base salary for a number of years, ending either at retirement age or when the disability ends.
Within each category, some policies pay out only if you cannot work in your own occupation; others pay out only if you cannot work any job for which you’re qualified.
How does disability insurance relate to estate planning?
Although disability insurance benefits end at retirement age, the connection between disability and estate planning continues long after retirement. “People spend a lifetime accumulating assets and building an estate with the intention of passing it on to their heirs or charitable beneficiaries,” Capital Asset Management explains. Without disability insurance, if you become too sick or hurt to work, the insurance may help you avoid using your retirement savings or liquidating important assets to cover income gaps. Without disability insurance, the use of retirement assets to pay day-to-day living expenses could wreak havoc on your efforts to accumulate and then pass on assets in later years.
At Geyer Law, where we help business owners protect their assets, their families, and their employees, we know first-hand that setting up a solid foundation for a business involves insuring major risks. Disability insurance plays an important role in many ways, including:
- buy-sell agreements
- succession planning
- employment contracts
“As a small-business owner, you’re responsible for two families: the one you have at home, and the one you have through work,” the nonprofit organization lifehappens.org points out. “Insurance can help protect your family and your business.” Business owners need to ask themselves, “What happens to my business and family if I become disabled? What if certain key emplo9yees become permanently disabled?”
At Rebecca W. Geyer & Associates, we consider disability insurance very much a part of estate planning.
– by Ronnie of the Rebecca W. Geyer & Associates blog team
