Sunday, July 21, 2013

Are You Financially Prepared for a Disability?

Worried About Losing Income DisabilityMany people aren't aware that disability is the number one cause of financial distress among families today.  People aren't prepared  for financial losses due to an injury or long term illness which often causes people to lose part of their income, especially, if you are used to living pay check to pay check each month.  In fact, the number of households that are currently living pay check to pay check is quite staggering.  Financial experts often recommend that people have a minimum of 4 to 6 months worth of salary tucked away.  Many people think that they aren't at risk for becoming disabled, unless they have a job that puts them at risk.  Did you know that 1 and 4 people will become disabled before they are able to retire?  No one ever expects or thinks that it is a remote possibility that they could be forced into an early retirement, have to take long term medical leave, or even deal with an injury that forces you take a lower paying job.  Just FYI, it takes roughly 30 to 36 months for a disability claim to be approved by the government.

Disclosure:  This post is for informational purposes only.  I am not a financial planner or adviser.  The opinions reflected in this post are my own and are based upon my own health and experience.

Open a Savings Account

A savings account is a great way to put money aside for a rainy day.  You never know when you need additional money to cover medical expenses, monthly expenses due to a layoff or disability, or even need money to pay day to day bills.  I  personally recommend making it hard to get to the money so that you aren't constantly withdrawing from this bank account unless it is a true emergency.  Using this method, can help you determine if you really need something vs getting something you want.  It isn't as tempting when you don't have the money in your checking account or cash to cover what you want.  When you set up a savings account, you can have your employer send a certain amount of money each paycheck to your savings account and the rest of your paycheck to your everyday household checking account.  Many financial experts recommend paying yourself first.  In fact, most recommend paying yourself the first 10% of your check.  If you tuck away 10% of your paycheck each month, you will be surprised how quickly the money will accumulate if it is left untouched.  Taking the money directly from your paycheck prevents you  from over spending or not putting away the money for a rainy day. 

Invest in a Short-Term Disability Policy

Getting a short term disability policy can help with unexpected issues.  The policy usually helps cover your everyday living expenses while you are unable to work without you losing all of your personal income.  A short term disability policy is for people who suffer from an illness or disability that keeps you from being able to work for a short period of time.  Talk to your human resources department to determine if your company has a group policy for short term disability.  If your company doesn't offer a short-term disability,  you can easily get a private policy.  In fact, check with your auto insurance company to see if they provide short-term disability policies.  Most people don't realize that having multiple policies often gives you a discount which helps make the plan more affordable.  

Invest in a Long-Term Disability Policy

Many people aren't prepared for long term illness or disabilities that could prevent you from working.  A long-term disability policy picks up where your short term policy ends.  Getting a long-term disability policy can prevent you from losing your house, car, or lifestyle that you enjoyed before you became disabled.  The long term policy has many great benefits and can protect you and your family from financial issues in the event that you can no longer work or do your job.  If you can't return to your original position and have to take a major pay cut, a long term policy will continue paying your payments at a reduced rate(check your policy for exact details).  Check with your human resources office to determine if your company has a long term disability group policy (you get lower rates).  If not, contact a private company to get benefits. 

Check With a Financial Adviser Before Cashing in Your Retirement Funds

If you become disabled, it is possible that you may be forced to cash in any retirement accounts that you have.  However, before cashing in a retirement policy you should consult a financial planner for assistance before making the decision to cash in your retirement.  Remember once you have exhausted all over your assets, then you no longer have a back up plan.  When you cash in your retirement , it is best to put the money into a separate bank account so that you aren't over-spending each month.  The money should be used to cover your basic living expenses so that you can try and stretch your funds as far as possible.  You also talk to a financial planner if cashing in your retirement will put you into a higher tax bracket.  

Save Your Tax Refund Check

If you are one of the lucky people who actually get a tax refund, you should either save it or use it to pay down your debt.  I know that most people often times splurge on items that they want; instead, of putting money aside for an emergency.  

Preparing for the Future

Short and long term disability policies are a great investment, in case something happens that you and leaves you unable to work.  This is the one thing that I personally failed to do because I considered these types of policies to be too expensive and I never imagined being unable to work.  A policy like this would have covered my current situation and I wouldn't have to feel so guilty for not being able to work.  

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Are you prepared financially if you are unable to work due to a long-term illness or disability?