Disability insurance helps protect you by providing income in the event of a disability. This insurance is particularly important because people are much more likely to become disabled than they are to die, which would be covered by life insurance. In fact, according to the Disability Insurance Resource Center, a 32-year-old is 6.5 times more likely to suffer a serious disability lasting 90 days or longer than to die.
In a previous post, we looked at a program designed to help young professionals, and even some students, protect their future earning ability in the event of a disability. There are two other disability benefits that individuals should consider, depending on their specific needs.
Student Loan Protection Rider
Student loan debt now totals $1.2 trillion, and the total student loan debt in the country is now greater than the total credit card debt. Not surprisingly, student loans are now the largest financial concern for many people. One reason for concern is that it’s almost impossible to get rid of student loans in the event of a financial hardship. For recent graduates with significant student loans, these can become an even greater burden in the event of disability.
The student loan protection rider can be added onto a disability insurance policy. With this rider, if the insured becomes disabled, the insurer will pay $500 to $2,000 per month for the student loan payments. Payments are made directly to the loan provider so that the beneficiary will not be over-insured. The rider has the flexibility to be dropped when student loans are paid off and it’s no longer needed.
The student loan protection rider is generally an inexpensive addition to a supplemental disability insurance policy. As medical students and other professionals increasingly graduate with over $100,000 in student loans, this rider can be a significant benefit for young professionals.
Retirement Protection Rider
With the loss of income that results from a serious disability, an individual also loses the ability to save for retirement. The retirement protection rider can be added onto a supplemental disability insurance policy like the student loan protection rider.
With this plan, after a client has been disabled for 180 days, the monthly benefit will be given to a fund where it’s invested as the client or advisor allocates. The benefit received from the insurer is non-taxable income because it’s a disability benefit purchased with after-tax dollars, but any income later earned by the investments would be subject to income tax.
Parting Thoughts
The riders described above are more appropriate for some people than for others. Merriman does not sell insurance, but it’s important that we work with our clients to develop comprehensive financial plans. We are proud to work with our clients and their family members to identify what may be appropriate based on their specific needs and circumstances.
