Americans are slightly less likely to suffer a long-term disability than they were a few decades ago, yet those who do will be disabled for a much longer period of time. A new study by Milliman for the Life and Health Insurance Foundation for Education puts the probability that a worker between the ages of 25 and 65 will suffer an accident or disability that keeps them out of the job for at least 90 days at 27 percent for men and 34 percent for women.

Unfortunately, there is plenty of evidence that nearly all workers vastly underestimate their chances of becoming disabled. Based on answers to a recent Harris survey, one reason people don’t tend to think about their chances of becoming disabled is the mistaken notion that injuries cause most disabilities. In fact, the most common causes of disability are diseases such cancer, heart disease and diabetes.

The financial havoc such an event can cause with your everyday life makes disability income insurance one of the most important coverages you can buy. Considering the recent financial turmoil in the economy, now would be a good time to review just what funds you would have available to meet your financial obligations if your income stops and your life goes on.

How does a disability policy work for you when you need it? Policies vary, but here are some things you should be aware of when looking at options:

• Protection of income in your own occupation. Look for a disability income insurance policy that pays if you lose the ability to perform the duties of your occupation, regardless of your ability to work at some other job. Some policies pay benefits only if you are totally disabled and cannot work at all.
• Partial disability. Partial disability protection allows you to collect benefits if only partially impaired, or to return to work part-time and still collect benefits. Working part-time or to the extent of your abilities is often important to one’s recovery. 
• Transition benefits. Another smart option is transition benefits that help cover your financial loss even though you're no longer disabled. Assume you are self-employed and suffer a heart attack. Eight months later, you return to work, but your income is down 30 percent because some customers needed to go elsewhere. Under a policy that pays a proportionate benefit, you'll receive 30 percent of your benefit.    
• Inflation protection. Inflation protection increases your monthly benefits before and during disability, as the cost of living rises. You might also consider insurability protection, which allows you to increase your coverage regardless of changes in your health, occupation or activities.

The most comprehensive policies are non-cancelable and guaranteed renewable. This means the insurance company can't refuse to renew your policy if your health fails, and it can't raise your premium until age 65.

Once you've decided which type of disability income insurance policy you need, consider two factors that can significantly affect cost:

• Beginning date. This is the length of time, or delay period, you're willing to wait until benefit payments begin. If you can live off your savings for three or four months, you can significantly reduce the cost of your disability policy.
• Maximum benefit period. This refers to how long you will receive benefits. Policies may pay benefits for one, two or five years, until you reach age 65, or you may extend the benefit period to age 70. Obviously, the longer the benefit period, the greater the cost of the policy.

Group Policies Offer Limited Protection
Because disability income insurance can be expensive, if you have the option of buying a group policy through your employer, it may save you some money. Although these typically cost less than individual policies, they often provide less comprehensive coverage, may exclude certain disabilities, and coverage typically terminates when you leave the employer.

Your best bet is to talk with a financial professional who can assess your entire protection package and decide which coverage is best for you. The important thing is to acknowledge that you are about three times more likely to become disabled than you are to die during your income-producing years, according to the Disability Income Resource Center. Make sure you have the risk covered. 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. To contact Josh, call (309) 693-0800, email josh.waite@nmfn.com or visit nmfn.com/josh.waite.