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Almost everyone works hard to get and maintain a certain lifestyle for themselves and their families. However, have you ever wondered what would happen if you were injured and unable to work? Would you be able to maintain the same lifestyle?
Mark Williams, CEO of Brokers International, told Insider that you should think about what would happen to the people who rely on your income if something happened to you. In that case, you may need life insurance.
However, more often than not, people are faced with situations where they need not only life insurance but also disability insurance. That’s why it’s better to buy them together and here’s why.
Do you need insurance?
Eric Roberge writes for Forbes that life insurance and disability insurance – or just about any kind of policy – is that it’s a product you buy in hopes that you never actually need to use it. And I totally agree because these are things you buy in case something goes wrong but you don’t want it to. Still, it’s better to make a strawman just in case, and in that case, it should be seen as a way to manage risk. Sure, you hope nothing happens, but you have a backup plan in case something goes wrong.
Silvia Tergas, a financial planner in Prudential, recommends seeing life and disability insurance packages as a way to ensure your top asset – an opportunity to make money in the future.
And in this case, these two types of insurance should be considered together, because in case of an accident you never know what it would lead for.
What is disability insurance?
You can look at disability insurance as a way to keep some of your income in case you get injured and can’t work. Just ask yourself (whether you still have people to support or not) – in case something goes wrong, how will you pay your bills? If you don’t have an answer, disability insurance is what you need.
Employers usually only provide short-term disability insurance. But what if your injury is long and you can’t work for a long enough period of time?
If you have disability insurance, you will receive a portion of your income in the event of disability. That way you will be able to pay your bills.
If you’re considering buying disability insurance, I suggest you use an online calculator to understand the numbers more accurately and choose a policy that will protect your lifestyle as much as possible.
What is life insurance?
Okay, let’s assume that you purchased disability insurance. But does it cover all the risks? Of course, if you live alone and don’t have any loved ones, that would be enough. However, if you have family members who depend on your income, you still haven’t protected them from all the risks.
In that case, you need to think about life insurance. In fact, it’s a contract between you and the company that you will pay premiums in exchange for payments to your family members (or your chosen beneficiary) in the event of your death.
There are two main types of life insurance policies to choose from permanent life and term life. Their terms vary, but that’s not what we’re talking about now.
Whichever type of life insurance policy you choose, you will need to go through the underwriting process. This is a procedure where the company determines the features of your insurance policy, including a review of your exposure and the share of the benefit your beneficiaries may receive if it happens.
Often, this procedure will include a medical exam to understand your health status (what health risks you have). The underwriting procedure will also determine the types of insurance plans you can get and your premium.
That’s why choosing a life insurance policy is even more complicated than disability insurance. You need to consider many factors, including your budget and your goals.
As Ronda Lee advises in an article for Insider, to choose the right life insurance plan you should consult with a financial advisor, accountant, and estates attorney. I agree with this position because it will help you choose the right plan that meets the needs of your beneficiaries and your financial capabilities.
Should you need life and disability insurance at the same time
Risk management is simple enough. You need to understand the risks and the chance with which they may occur.
The risks are simple enough – if you become disabled (even temporarily) you will not be able to work and earn an income. This means that if you do not have stable and sufficient sources of permanent income, you will definitely not be able to pay the bills, i.e. to maintain your former lifestyle.
I really don’t like talking about life insurance because it’s hard enough to write “if you die, your family members (in case they rely on your income) will definitely not be able to maintain their former lifestyle”. But you have to understand that, even if it’s really nasty to think about it.
Now you have to understand the chances of that risk happening. According to Guardian Life, more than 25% of those in their early 20s can expect to be out of work for at least a year because of disability before retirement. It’s just a statistic but it should be heeded.
Of course, if you don’t have people who rely on your income, then life insurance may not be necessary. However, if there are people who rely on your income, then life insurance is one of the key elements that will help protect your family (or other beneficiaries) if something bad happens.
So when you buy life insurance and disability insurance, you get maximum protection against the risks.
Of course, it’s important to choose the right insurance plan that’s the best in terms of what-you-pay/what-you-receive. In that case, you need to consult with your financial advisor and others to choose the options that will be the best choice for your situation.