Not Wanting to Cancel

Dear Dave,

My wife and I are a few months away from being completely debt-free, except for our house. Our combined income is about $100,000 a year. We've been looking into long-term disability insurance. What is non-cancellable guaranteed long-term disability insurance, and how much should we get?

Tim

Dear Tim,

Ask yourself this question: If I become disabled, how much money will I need to live on? In most cases, the maximum you can get is around $75,000. Since you guys have a pre-tax income of $100,000, you'd be able to live on that, even a little bit less, if something happened to one of you.

Check out the tax situation. Historically, employer-furnished disability payments were taxable as replacement income, while payments on individual policies were considered insurance proceeds, and not taxable. This will make a big difference in how much available cash you will be getting.

I don't worry about short-term disabilities, because if you're debt-free and have an emergency fund, you can handle those. It's the things that could incapacitate you for years, or even the rest of your life that should concern you.

If you get into a bad health situation, non-cancelable, long-term disability is definitely the kind you want as long as the additional premium for such a feature isn't sky high. But if you can get this for a few more dollars a month, I'd go for it!

- Dave

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