As of December 2023, 44% of Americans would not cover a $1,000 emergency from their savings account. Per Forbes, a 2023 survey on Payroll.org highlighted that 78% of Americans live paycheck to paycheck.
So, what would happen if that income stream turned off? Many people think of this as potentially getting laid off from employment. Another potential risk to your income is what we refer to at the Financial Enhancement Group as “Life Happens.”
Many with loved ones will address getting called home early by having life insurance, but an often-overlooked area is a disabling event that stops or limits a worker’s ability to continue to earn wages.
Per the Social Security Administration, one in four of today’s 20-year-olds in the workforce will develop a disability before reaching full retirement age. Many people associate being disabled as needing a wheelchair, but based on the same findings from the SSA in 2022, only 30.5% of people with disabilities have musculoskeletal and connective tissue issues. Conditions such as mental health and illnesses such as cancer do not typically come to mind when we think about a disabling event.
At Financial Enhancement Group, we focus our efforts with the families we serve to understand their “Standard of Living.” What does it take for me to cover my lifestyle? Are there people who count on me as a provider? After you have this answer, you should have a much better idea of what you need to protect.
Disability insurance is a means of replacing lost wages if you meet your policy’s definition of disability. Most large companies will have some type of short- and long-term disability policies available to their employees. It is key to see what coverage is available to you. If you cannot replace your current standard of living with the policy’s benefits, it would make sense to look at obtaining more coverage, whether through purchasing it through work or finding a standalone policy.
Another factor to consider is how the disability insurance payments will be taxed. If you are paying your own premiums with after-tax dollars, your benefit will be free from tax. If your employer is paying your premiums and writing it off as a business expense, you will be giving some of this benefit to Uncle Sam.
Disability Insurance is very nuanced, and individual policies can include numerous definitions and riders, which can be challenging to interpret. The Financial Enhancement Group does not sell this insurance, but we have viewed many of these policies since we were founded in 1997 and have consulted with our clients on what we find to be most important when considering a policy.
While topics such as untimely demise and injury may be uncomfortable to discuss, you owe it to yourself and your family to make sure you have adequately prepared for worst-case scenarios. And while you may not be one of the 78% of Americans who live paycheck to paycheck, it might be worth considering passing these risks to an insurance company, in order to protect your assets.
Financial Enhancement Group is an SEC Registered Investment Advisor.
