Disability Insurance a Key to Good Estate Planning

Article excerpt

Disability insurance is an often overlooked major component of the estate plan of a young two-career couple.

In one respect, disability insurance may be even more necessary than life insurance. Consider this difference: A deceased spouse is no longer producing income, but also is no longer consuming the family's income.

On the other hand, a disabled spouse may cease producing income, but will continue to consume the family income and may consume even more than before as a result of medical care and special needs arising from the disability.

A spouse's long-term disability can cripple a family's finances far more seriously than a spouse's death.

Statistics show that if you are 35 now, there is a 1-in-3 chance you will at some time in your life become disabled for a period of three months or more. Furthermore, your chance of having a long-term disability before age 65 is greater than your chance of dying before that age.

Most people simply have no idea what protection is available if they become disabled through illness or an accident. They are unaware of the different meanings of disability as the law and insurers define it. They don't know what kind or the amount of protection to buy.

A competent estate planner can make recommendations to a client about coverage.

Many working people are covered by some kind of government or employment disability plan.

Government protection plans include state workers' (workmen's) compensation, state sickness disability, Social Security, veterans' benefits and insurance policies for people in the armed forces.

But most of these will not provide more than a subsistence level of support, and some programs are limited to those with low incomes.

Workers' compensation covers only accidents or illnesses that occur as a result of the job. Only a few states have compulsory coverage for disabilities that occur as the result of non-occupational injuries and illnesses. By and large, government benefits will not meet your family's support needs.

Your employer may offer some disability protection. Many employers will voluntarily continue an employee's salary for a period of time during disability or will supplement government disability payments. But this aid is not likely to continue for more than a few months in the absence of a contractual obligation.

Some group health plans include disability income provisions that pay a percentage of salary. An example of such a provision is one that pays 50 percent of salary for 20 years or until age 65.

Pension plans and profit-sharing plans also may provide disability coverage. Be sure to check with your employer to find out what coverage is offered.

But a young two-career couple may not have worked long enough to qualify for these benefits. In any event, it is likely that individual disability insurance will have to be obtained. …