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How Much Disability Insurance Is Enough?

By Jason Markum

Insurance, it’s a vitally important part of every single one of our lives yet at the same time it’s hardly understood by anybody. We have insurance for cars, houses, medical, expenses, even life insurance in case we die, and disability insurance in case we are no longer able to work to support ourselves.

In fact the entire country here in America right now has just spent the last 3 to 6 months massively debating health insurance all the way up to the highest levels in Congress were they’ve been trying to pass the president’s health insurance initiatives unsuccessfully. The point is, which ever side of that debate you take, it’s pretty incredible that so many of us are spending so much time talking about it!

I mean, it’s insurance; the world is talking about insurance! But I digress…

One thing I find though in all the talk of insurance on all the different levels… one thing hardly ever gets talked about and that is disability insurance and that’s a real shame because disability insurance is one of the most important insurances that you will ever need.

It covers us in case we get disabled and can no longer work. It pays all our bills, and supports our families, and makes sure our kids are able to go to college and that we can pay for. In short it’s the most important insurance I can think of and we hardly ever talk about.

So I for one would like to talk about it in this article today and I’m going to do so by talking about how much disability insurance is enough.

The first thing to do before you buy disability insurance is to completely assess your financial background. You need to list all your assets, including your house and cars and cash and investment accounts everything that has a value in can be liquidated. Next figure up how much money you need to live off of for each year. Make sure to calculate the cost of mortgage payments, utility bills, food, other insurance costs, and absolutely everything that you pay for in a given year..

The point of this exercise is to get a good idea of how much money you have right now, and how much you need to live off of in a given year so that you can calculate how much will need if your income level suddenly dropped to zero.

One important thing to consider is inflation. All the things that you spend money on might cost a total of $60,000 a year let’s say. That $60,000 is going to increase next year because of inflation. To buy the same exact things next year in my cost you $62,000. So when calculating how much you’ll need in the future be sure to calculate for inflation and if you don’t know how to do this search around the Internet and I’m sure you can find a free inflation calculator or at least learn the simple mathematics involved which I won’t get into today.

Another thing to consider is partial payment for work. Does your job include partial payments in the case of your disability? If so be sure to calculate that in to the equation.

Also an important thing to consider is increases over time in your expenditures. Your expenditures may be $60,000 a year this year but in six years your kid may need to go to college, at which time your expenditures will jump quite a bit. Be sure to take these sorts of things into consideration when you make your calculations.

You can get a fairly good idea of how much you’re going to need in disability insurance just by doing these simple exercises I’ve discussed in this article. But at the end of the day you really need to sit down with a licensed professional insurance agent and go over the numbers with them in greater detail because they will catch things that you have missed.

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