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Question on Individual Disability Insurance

Question:

My Disability policy has an automatic increase rider built into the policy.  Each year we receive a premium increase of $100 for benefit increase of $320. Should we accept this increase or decline the increase?

 

Answer:  

That’s a good question and as with most answers in financial planning it depends.  

Ideally, if you are adequately saving and your investments performing, your net worth should rise over time and your “need” for disability insurance consequently declines.

On one hand think if you are insured properly, you should not need the step up in benefit that is designed to keep your insurance benefit equal to an inflation adjusted benefit value.

However in the real world most Americans are woefully under insured in regards to disability income protection.  Our ability to earn an income is by far the largest potential asset and rarely do we find investors that are over insured for disability.

Even those that have disability through an employer plan usually have weak coverage that provides much less protection than what we usually need.

Before you decline the annual step up make sure that you really do not need the protection, because in the event of a disability cost usually rise and your ability to earn is usually severely limited.  Purchasing high quality disability insurance is one of the only topics that most advisors from different approaches and affiliations commonly agree on.

–Mike

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