How Much Disability Insurance Do You Need

About 30 percent of Americans between the ages of 35 and 65 will suffer from a work-impacting disability lasting at least 90 days during their careers, and about 14 percent of American workers will be disabled for more than five years, according to the Health Insurance Association of America.

Despite these figures, the vast majority of consumers seem to underestimate their need for disability insurance. A survey conducted by the Consumer Federation of America and The American Council of Life Insurers revealed that 82 percent of Americans have no long-term disability insurance or believe their current coverage to be inadequate.

Financial Impact of a Disability

Not having sufficient disability insurance has been shown to significantly impact one's financial stability.

The May 2000 Norton Bankruptcy Adviser reported that more than 326,000 families who had filed for bankruptcy protection in 1999 cited an illness or injury in their family as the primary reason for the bankruptcy. This finding meant that the outstanding debts belonging to one in four debtors in 1999 were the result of a disability.

In addition, the U.S. Housing and Home Finance Agency found that 48 percent of all mortgage foreclosures were due to a disability.

Impairments Leading to Disability

Many people might assume that most disability cases are the result of a serious injury. However, the National Institute on Disability and Rehabilitation Research found that only 13 percent of all disabilities are due to an injury. The vast majority are actually the result of a serious illness.

According to the Health Insurance Association of America, the top disabilities resulting in disability insurance claims are back impairments (18.1 percent), emotional or psychiatric impairments (12.7 percent) and neurological impairments (11.3 percent).

Other disabilities cited by the Health Insurance Association of America include:

• Impairments Related to the Extremities: 9.0 percent
• Cardiovascular Impairments: 4.1 percent
• Diabetes: 3.5 percent
• Substance Abuse: 3.3 percent
• Hearing Impairments: 2.9 percent
• Vision Impairments: 2.6 percent
• Blood Disorders: 2.6 percent
• Cancer: 2.3 percent
• Asthma: 1.7 percent
• Other: 25.7 percent

How Much Disability Insurance is Enough

Now that you know the importance of having disability insurance, how can you determine how much coverage you will need?

First, you need to determine what your fixed monthly expenses are. These expenses should include your mortgage payment, your utility payments, your car payment, any medical bills and your credit card payments. You also should include funds to cover such necessities as food and gas for the car.

Then, you need to determine your family's total income if you were unable to work. This figure should include your spouse's income, any income from investments and any payments you would receive from your company-sponsored short-term disability benefits or long-term disability benefits.

The difference between these two numbers - your expenses and your income - demonstrates how much disability insurance coverage you will need.

To assist in selecting disability coverage, you also should determine how many months you could go without having the additional insurance payments. This timeframe will help you decide on the policy elimination period, or how much time after the onset of the disability is required before the insurance payments kick in.

It will help to have a healthy savings account set aside in order to extend this period of time. The longer the policy elimination period, the lower your disability insurance premium will be.