Q: What Benefits Should I Look For in a Long Term Disability Plan?
When it comes to selecting a plan the first thing to determine is whether you have access to a group plan through your employer. Group plans tend to offer lower cost alternatives and are easier to qualify. Many people are not always aware of what their employer may offer so that tends to be a worthwhile inquiry.
If you need to consider an individual policy then Dave recommends at least a five year benefit period for disability insurance but prefers Age 65 if it is within your budget. Since the 85% of disabilities are resolved within five years this is the shortest term that he feels is appropriate. An amount equal to 60 to 70% of your monthly income is a good starting point and can be reduced based on your progress with debt and savings. A waiting period of 90 to 180 days is recommended since you can rely on your emergency fund during this period and these options help reduce the cost. Many of the riders to these plans are “bells and whistles” that really add very little value to the overall protection. As long as you have a guaranteed renewable plan through a quality company these would be the initial coverage’s to focus on.
It is important to keep the risk of long term disability in perspective. Overspending for a “Cadillac” type plan at the detriment of other financial goals is not recommended. It is a mistake to over-insure this risk and not equally focus on other types of core insurance plans such as Term Life, Health Insurance, etc. as well as concentrating your efforts on paying down debt and growing your savings.