Carrie Schwab Pomerantz

Getting disability insurance through your work is likely your most cost-effective choice because it's purchased through a group plan. An employer may pay the premiums or pass a percentage of the premiums on to you. Even if your employer doesn't specifically offer the insurance, you may still have the opportunity to voluntarily buy into a group plan at significant savings. One drawback is that, should you change jobs, you can't take your policy with you.

Look at All Your Sources of Income

Disability insurance through your work or your state is a step in the right direction, but it's not the complete answer. That's because these policies usually replace only about 55 to 65 percent of your income. Many policies have a benefit cap of around $5,000 per month, so $60,000 a year.

How will you cover any shortfall? Social Security Disability Income (SSDI) currently averages about $1,100 a month (and is very difficult to qualify for). If your spouse has an income or your savings are extensive, that may help. But is it enough?

Consider a Private Policy

If the numbers don't add up, a private long-term disability policy -- which can boost coverage to 80 percent of income -- may be worth the cost.

Besides a bigger benefit, private insurance has the advantage of being portable; you can take it with you wherever you go. Plus, benefits are tax-free as long as you paid the premiums with after-tax dollars.

Also, if you're highly skilled (and can afford it), you might want "own occupation" as opposed to "any occupation" coverage, which means you won't be forced to take a job outside of your area of expertise.

If a private policy makes sense, consider that:

--Policies have a waiting period before benefits start. The longer you wait, the lower the premium.

--A cost-of-living clause increases benefits with inflation, but also increases premiums.

--A non-cancelable policy can't be canceled by the company if you pay your premiums on time, nor can the company change the benefit or the premium.

--A guaranteed renewable policy can't be canceled by the company provided that you pay your premiums on time,  but  the premium can be raised.

Private policies are complicated, so it's best to work with an agent you trust. One last thought: The older you are, the harder (and more expensive) it is to get disability coverage. If you decide it's something you need, do it now.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at



Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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