Q: How Much Disability Insurance Should I Have?
The disability income benefit is the monthly amount of money that the insurance company will pay to you in the event that you are totally disabled. This amount is typically limited to a maximum of 60-70% of your current monthly income since the insurance company knows that disabled persons expenses reduce when they are disabled and they want you to have an incentive to return to work if possible. In addition, disability benefits are received on a tax free basis (if paid with after tax dollars) so the entire amount is available to you for your personal and family needs. It is recommended that you can start at this 60-70-% level and consider reducing it if you have made strong progress with your debt and other savings programs. As your emergency fund grows you can also consider a longer waiting period which helps reduce the cost.