Disability insurance for single women is so important! When it comes to risks to insure against, many people, don’t put disability income protection on the list. Possibly that is because there is far more advertising made around the auto, health, homeowners/renter’s insurance, and life insurance products.
Is that the most financially advantageous mindset, however, for single women? Life insurance is most often intended to cover the income needs of your survivors when you die. If you’re single, however, that need is often absent.
Rather than (over)spending on insurance, you don’t need, consider freeing up that money instead for a disability policy that you’re statistically more likely to need.
According to the Council for Disability Awareness:
- 25% of today’s 20-year-olds will be out of work for at least a year during their working career due to a disability.
- By age 35, your chances of being disabled for 90 days or more before retirement climb to 50%.
- 5.6% of the American workforce will experience a short-term disability every year.
- Almost 90% of long-term disability claims are caused by illnesses, not accidents, and are not work-related.
When it comes to disability insurance for women, it’s likely a “matter of when” not if
Even more sobering, a 2019 study indicated that 44.3% of participants cited “medical problems causing work loss” as a major contributor to their resulting bankruptcy.
You may be lucky enough to be covered by a group short- and/or long-term disability policy at work. Group disability insurance policies typically have the benefit of lower premiums than individual policies.
Disability insurance you have through work is a great start for protecting your income. While it’s a generous perk from your employer, it does come with a couple of catches. First, employer-provided insurance is not portable. If you leave the job, your policy disappears.
Second, if your employer, rather than you, is paying the monthly premium, any benefits paid to you will be taxed at your current income tax rate. This can have serious financial ramifications for you.
Personal disability insurance benefits are not taxed
For example, let’s say you have an annual income of $75,000, which is $6,250 per month. Also assume you’re in the 30% bracket for federal, state, and FICA taxes, making your true take-home pay equal to $4,375 per month.
A typical long-term disability plan will cover 60% of your monthly $6,250 income. That’s $3,750 per month if you are to become disabled. If your employer is footing the bill for your disability premiums, that $3,750 will still be taxed at the 30% rate! You are then expected to live on just $2,625 per month if you become disabled.
With an individual disability policy, you can supplement the distributions offered by your employer-provided plan with benefits that are not taxed. Say, for example, you purchase an individual disability policy providing you with an additional $1,600 (untaxed) income per month. So if you become disabled, your $2,625 employer plan benefit will be supplemented with a $1,600 individual plan benefit. That brings your monthly benefit back to $4,375.
The benefits of an individual disability insurance policy are that it remains in force even if you change jobs, get a raise, or develop health issues.
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As a financial consultant, specializing in the financial needs of women, Kathleen Connors understands that you want to work with an adviser who is relatable and trustworthy. She focuses on life’s unique goals and takes the time to educate her clients about their financial future. Kathleen is passionate about helping women reach clarity and confidence around their finances. It doesn’t matter where a client may be within their life’s journey. Kathleen brings warmth and compassion to the financial planning process, with no judgments.