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Income Protection with Disability Insurance

Income Protection with Disability Insurance

September 29, 2022

I often ask my clients “what do you think your biggest asset is?” It’s surprising to hear some of the replies, my home, my business, my 401k, and even my car. Let’s completely turn it around and focus on your ability to produce income and provide a standard of living for your family. Disability Insurance is a financial product which is designed to safeguard your income in case you are sick or injured and are unable to work.

We have a friend who was very successful in the financial services arena.  He was also an Olympic level downhill skier.  He was married , one young child, 32 years old, newly purchased home.  Wife was able to stay at home with their new son.  Skiing in Utah, at a very rapid speed (because that’s just how he lived), he hit a patch of ice, lost control, ran straight into a tree.  He wasn’t expected to make it.  He ended up in a coma for 3 months, rehab for 9 months. Because he had the foresight to purchase long term disability insurance (the “it will never happen to me”, did cross his mind), he was able to keep his home, have his wife continue to stay home and care for not only their child, but help him with his rehab.  Their life didn’t change much from a financial standpoint.  It is now 20 years later, and he is the most adamant believer in personal long term disability insurance because he LIVED it. 

There are numerous resources available to help protect your income, depending upon where you work. Most states require employers to pay for disability insurance for their employees. Many employers provide some short-term sick leave. Many larger employers provide short-term disability (STD) and long-term disability (LTD) coverage as well.  Short term disability typically lasts up to ONE year, while long term disability will pay benefits of up to 60 percent of salary lasting anywhere from five years to age 65. In some cases, LTD insurance is extended for life. Disability benefits from employer-paid policies because they are paid with pre-tax employer dollars, are subject to income tax. Because of those taxes, that 60% maximum income plan after taxes in reality would become closer to a 40% plan. How would your financial situation look on less than half your income?

When you buy a private disability income policy, you can expect to replace 50 percent to 70 percent of income. When you pay the premiums yourself, because it is with AFTER tax dollars, disability benefits are tax free.

Disability insurance provides vital protection for most workers against events that are unpredictable and hard to contemplate. People will purchase cell phone insurance to protect their phones from damage or theft, and substantial auto insurance coverage to protect from uninsured motorist, vehicle damages, and injuries.

Disability insurance can also be valuable to a business partnership and protection held in a buy-sell agreement. A buy/sell agreement, also known as a buyout agreement, is a contract funded by a life insurance and disability policy that can help minimize the turmoil caused by the sudden departure, disability or death of a business owner or partner. I recently helped two business owners with their buy-sell funding policies while collaborating with their business attorney to find the appropriate amounts of disability coverage and life insurance. The partners continue to express how much comfort this brings to both their personal and business lives.

Often, I hear the emotional rationalization that often arises as “it will never happen to me”. If you had an ATM in your garage and it spit out 10k tax free each and every month for the next 20 years, would you consider insuring that machine? 

Here’s another analogy: you are interviewing for a job.  You have two offers on the table.  One will pay you $100k a year.  But, if you are not able to work for 3 months because of some type of injury or sickness, they will not pay you.  The other offer is for $97k a year.  But, the main difference here is if you are injured or not able to work, they will continue to pay you the $97k a year.  Which job would you take?  Why not “spend” 3% of your income to protect your income?  You want to insure the goose, not the golden egg.

Securing protection in the event of a serious illness or injury is just as important as insuring your home or car. Your income is what makes that mortgage and car payment possible after all. Our team has the resources to look at all options available in your state and research the appropriate solutions for your needs and occupation. Let’s talk about income protection planning today!


Marianne Ehlers, CA Insurance License #0I57918, is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp. a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. 17400 Laguna Canyon Road, Suite 125, Irvine, CA 92618, Phone: (949) 341-4188. Lincoln Financial Advisors Corp does not provide legal or tax advice. Oakwood Wealth Partners is not an affiliate of Lincoln Financial Advisors Corp. CRN-4972138-092822