Disability Insurance - Part 2

If you pay the disability insurance premiums and incur a disability, the benefit you receive is free of income taxes.

Okay, you're convinced. Now, where do you get the coverage? Check out the benefits department at work for group disability insurance offered through your employer. That is going to be the cheapest insurance you'll find available to you. Do you need both short term and long term? Maybe not. If you are married and your spouse's income could cover family expenses for three months, or you have an emergency fund set up with three month's worth of living expenses, you may not need short-term disability insurance. It's the long-term coverage you really need. It usually kicks in after 90 or 180 days, so figure how long you and your family can make it without any of your income coming in.

Disability insurance only insures you for 60 to 70 percent of your income, and there may be some income caps as well. The insurance company wants you go to back to work, and if you were receiving 100 percent of your income, three may be no incentive on your part to try to return to work.

If you pay the disability insurance premiums and incur a disability, the benefit you receive is free of income taxes. If your disability insurance is part of the benefits package at work and your employer pays the premium, the benefits you receive during a disability are taxable income to you.

If you can't get insurance through your employer, consider getting it on your own. Find an insurance agent you trust and ask him or her to do some research for you. If an agent sells you a policy, her or she does earn a commission on the sale.