Have you been contributing money to a retirement plan?  If yes, then you are doing a great job. You’re on the way to meeting your retirement goals.  Have you ever thought about what would happen to your retirement contributions if you became disabled?  You will most likely not have any earned income to contribute to a retirement account. Would you be able to continue saving for retirement without your income?

A disability could disrupt your retirement savings in more ways than one:

  • Your contributions to Social Security would stop.
  • Contributions to your retirement savings plan such as a 401(k) or 403(b) would also stop, as would any employer matching contributions.
  • If you lose your job due to a disability, you will no longer accrue additional benefits such as a pension, IRA, etc

There is a way to continue to build a retirement fund in the event of a disability.  Some disability insurance carriers now offer a disability insurance policy which helps you continue saving for retirement.  These policies are ideal if you are serious about saving for retirement and have maxed out your personal disability income insurance benefits.

Upon a qualifying disability, this type of policy would pay monthly benefits directly to a trust to help you continue saving for retirement.  The trust then invests the benefits based on your risk tolerance in various investment options within the trust. At retirement age (varies by policy, but typically age 65 or 67), you would start receiving income payments from the trust. These payments would continue until death or until the funds have been exhausted.

When shopping for this type of policy, you should consider the following:

  • Benefits with an inflation option
  • Ability to increase coverage amounts without evidence of insurability
  • Non-cancelable, guaranteed renewable coverage
  • Benefit periods that will coincide with extended retirement ages (such as age 65 or 67)
  • A policy that allows you to decide how to invest your benefits; based on your risk tolerance level
  • Some carriers do not require that you currently contribute to a retirement plan.
  • A typical policy costs about half of one percent of your income to protect about 13-15% of your income in retirement contributions (each person’s situation will be different)

You will have the peace of mind knowing that your retirement dreams are protected in case you become disabled. Remember to find a knowledgeable independent insurance broker to explain your options available from multiple insurance companies. Understand what scenarios are covered and to what extent they are covered. It is important to select a policy that will provide the proper amount and type of financial support in your time of need.

Disability Income Insurance policies have limitations and exclusions. Features and costs vary by insured’s occupation, age, health and state of residence.  For costs and complete details of coverage, contact your personal insurance broker/agent.  The information presented here is not specific to any individual’s personal circumstances and is provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in this article may change at any time and without notice.

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