Hopefully, you now realize the importance of having the right type and amount of insurance coverage. The next step is to correctly determine your specific disability insurance needs. How much financial assistance will you and your loved ones need if you are disabled and can't return to work? How long can you afford to go without income? These are serious questions that need to be answered, and unfortunately there is no magic formula that works for everyone because your situation is unique to your circumstances.

So, how do you go about determining your specific insurance needs? Once again, the first step is to get educated. This will help you immensely in understanding the various types of coverage, and in identifying your general needs, or at least what aspects of coverage you don't need. Then you will be prepared to determine your actual insurance needs.

There are three basic questions that you need to answer:

1. Do you need disability insurance? If you work, the obvious answer is yes.. The real question is whether or not you can afford to be without it. Do you have a job that is somewhat dangerous? Do people sometimes get injured at your worksite? Do disabling diseases run in your family? Does your spouse make enough money to pay the bills if you were disabled and couldn't earn any income? Do you have a source of passive income that could pay your expenses while you are disabled? Disability insurance can be expensive, depending on various options. Your decision will be based on your needs, as well as the cost of this benefit.
2. How much income would you need if you couldn't work?
   The standard disability insurance policy will provide about 60% of your normal take-home pay (after taxes). Can you afford to live on this, or do you need to increase this percentage to 80%? Obviously, this will depend on your specific financial situation, as well as what family responsibilities you have. If you are young and single, 60% of your net income might be fine. If you are married with children and are the principal income earner, you may need 80% of your income. Also, keep in mind that this percentage would be based on your current income, not your future potential income, so more is definitely better.
3. How soon would you need the disability income?
   The standard disability policy may require that you not be able to work for up to 180 days before you receive any assistance. Can you survive that long, or will you need income sooner, perhaps as soon as 30 days? Obviously, the sooner you need the money, the more you will pay in premiums. This decision again will depend on your financial situation, as well as the cost of receiving the benefits sooner than later. If you have a six-month emergency fund or other resources, such as short-term work coverage or state disability benefits, you may be able to opt for a longer period (six months to one year) before receiving your benefits, thus reducing the cost.
4. How long will you need the benefits? This almost seems like a silly question, since no one can no for sure what type of injury or disability they might have, or how long it might last. The temptation is to believe that most often, people are out of work due to injury for less than 90 days, and certainly almost never longer than two years. Although true, the risk is not worth the potential savings. We recommend coverage until you reach retirement age, even though it is somewhat more expensive. If you need to reduce your premiums, consider a longer waiting period. Changing from 60 to 90 days can lower your premium as much as 30%.

Consult our step-by-step approach to figuring out how much coverage you really need.

If you still have questions, consider getting professional help. Once you have determined your specific needs, then it is time to begin evaluating your current coverage so that you can identify and make any necessary changes.

Step 4 - Evaluate Your Insurance Policy