If you are one of the lucky workers with an employer-sponsored disability income policy, you are more fortunate than most. It is better to have group coverage than not. But it is best, whether you have a group policy or not, to make sure you are adequately protected.

Becoming disabled due to an accident or illness is a very real risk. Statistically, you are three times more likely to become disabled during your working years, than you are to die, reported the Social Security Administration’s 2007 Actuarial Publications. Yet most of us—nearly 90 percent according to a survey published in 2007 by The Council for Disability Awareness—vastly underestimate these odds and fail to put a safeguard in place.

The question to ask yourself is whether your family could meet expenses for three or four months if the primary wage earner lost his or her income due to a disability. Given the current financial conditions, now would be an excellent time to review your assets and consider how long your family could make ends meet if the primary wage earner suffers from cancer, a heart attack, an accident or some other disabling event.

Even if you have an employer-provided disability plan, such policies seldom provide families with enough benefits to meet all of their financial obligations.

Limitations of Employer-Provided Plans
Here are some typical limitations of group disability income insurance plans provided through an employer:

• They pay only 60 percent of base salary, which leaves you to meet your financial obligations on a 40-percent drop in income.
• They do not cover incentive compensation such as profit-sharing contributions, deferred compensation or regular incentive bonuses.
• Benefits paid out are taxable income to the employee when the premium is paid by the employer.
• Benefits paid are often offset by Social Security and any other disability benefits received.
• Employer policies often have maximum monthly benefit caps.

For example, if the policy’s benefit scale runs to $100,000, anyone making more than that receives even less than 60 percent of base salary when faced with a disability.

Some employees mistakenly believe that the government will fill in any gaps left by a company plan. Social Security disability benefits, however, are only intended for long-term, total disabilities. The Social Security Administration’s 2007 Actuarial Publications noted that for this reason, 65 percent of the 2.5 million workers who applied for Social Security Disability Insurance benefits in 2007 were declined.

Calculating Your Income Post-Disability
Clearly, everyone who relies on a paycheck needs to assess how long he or she could continue to meet financial obligations in the event of a disability, including any ongoing savings for education and retirement.
As a first step, it’s important to consult with an experienced financial professional. Look for someone who is both knowledgeable and trustworthy. Make sure the insurance company is reputable, and has financial strength and stability and commitment for the future.

A financial professional can help you assess whether you would have the financial resources to meet your obligations in the event of a disability and for how long. If additional disability income coverage is needed, he or she can advise what types of supplemental coverage would be appropriate. Underwriting rules by insurance companies often dictate how much coverage is available to an individual, but the wide variety of policies on the market today can suit many different income levels and budget requirements.

What’s most important is to have a solid, complete plan in place to get you through the “have not” periods of life. iBi

Article prepared by Northwestern Mutual with the cooperation of Josh Waite, a Wealth Management Advisor with Northwestern Mutual Financial Network, the marketing name for the sales and distribution arm of The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin, its affiliates and subsidiaries. Financial Representative is an agent of NM based in Peoria, IL. To contact Josh, please call 309-693-0800, e-mail him at josh.waite@nmfn.com or visit his website at www.nmfn.com/joshwaite.