Disability Insurance Offers Partial Income Replacement

February 1, 2023
The Importance of Disability Insurance for High Earners

If you become ill or injured and are unable to work, would you and your loved ones have the savings needed to maintain your lifestyle? Consider disability insurance as a crucial source for partial income replacement. While a policy won’t replace 100% of your income, it can go a long way to help cover nondiscretionary expenses like your mortgage. If you already have a policy, review it periodically to ensure it offers the coverage you need.

Q: What Risks Do I Face if I Don’t Have Disability Coverage?

A: Household and student loan debt comprise the largest share of debt among those in their prime earnings years. Consider that professionals, such as doctors, lawyers, corporate executives and business owners, often hold substantial mortgages. What’s more, they can carry significant student loan debt. For example, the average medical school student owes an eye-popping $250,990 in total student loan debt upon graduation.1

Q: If I Have Disability Coverage Through My Employer, Do I Need More?

A: Most likely. Employer-provided disability insurance typically covers 50% to 70% of your salary and is capped at levels often well below the annual earnings of high earners. Note that bonuses, commissions and other incentive payments are not regarded as “salary” and therefore are not protected by your employer policy. Plus, your benefit may be limited to a period of time, such as three or five years, which would not be adequate if you were diagnosed with a progressive disease that ends your career or if you were to become permanently disabled.

Q: What Should I Think About When Purchasing Disability Insurance?

A: The two main types of disability insurance are short- and long-term policies. That said, a long-term policy offers the most comprehensive coverage and can serve as an effective complement to your employer-provided short-term policy, helping you avoid tapping into savings or retirement accounts to cover income gaps.

Q: When Should I Increase My Disability Coverage?

A: If you receive a raise, your insurance policy should provide partial income replacement for that higher salary. Many individual disability insurance policies offer riders that allow you to increase your monthly benefit. Referred to as guaranteed insurability, guaranteed purchase option or future increase option, this rider typically lets you purchase additional coverage every three to five years on the anniversary date of your original policy. Keep in mind, some individual disability insurance policies may not charge for the guaranteed insurability rider, but most will require an extra premium, which will be calculated based on your age when you purchased the new coverage.

Q: How Often Should I Review My Disability Coverage?

A: We recommend that you review your insurance policy once a year and whenever you experience a life-changing event such as a new job at a higher salary or the birth of a child to ensure you have adequate coverage. It’s not uncommon to open a policy early in life and then not review it again.

Q: How Can Disability Insurance Help Business Owners?

A: Business owners who lose a partner to a long-term illness or debilitating injury may find themselves in the position of losing their business as well. To ensure your business continues to thrive, disability insurance can be used to fund a buy-sell agreement with your business partner. Such an agreement provides for a clear transition of ownership to the remaining partner when the other partner leaves the business.

Q: Should Disability Insurance Be Part of My Overall Wealth Plan?

A: We believe disability insurance is a key income replacement strategy to include in your wealth plan. Consider that if you are not working due to a disability claim, you also might not be making contributions to your employer retirement plan at the same level as prior to your illness or injury. Additionally, other group benefits, such as health insurance for your dependents, may be temporarily unavailable to you.

At Mariner, our in-house insurance team can review your existing policy or make recommendations for a policy based on your income replacement needs.


1“Average Medical School Debt.”

Some MWA advisors are licensed insurance agents and may be compensated for the sale of insurance-related products through an affiliated insurance agency. All guarantees and benefits of an insurance policy are subject to the claims-paying ability of the issuing insurance company.

The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information.

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