Q. At age 35, John becomes permanently disabled. How much total income will he lose if he earned $5,000 per month and got a 2% raise each year?

The correct answer is:

$2,434,085

 

Wouldn't it be nice to get that money all at once?!

 

John still had 30 working years left. He would lose $60,000 in the first year of disability. If he received a 2% raise each year, he would have earned $108,682 at age 65.

 

If you care to know, the total income is calculated by multiplying $60,000 by the geometric series (1-(1+2%)^30years)/(1-(1+2%)).

 

How does this affect life insurance premiums?

 

Disability premiums are much higher than life insurance premiums simply because the insurance amount is higher (than say, a typical $250,000 or $500,000 life insurance policy) and the odds of becoming disabled are higher.

 

The chance of becoming disabled is considerably higher!

 

During a man's 35th year, he is 10 times more likely to suffer from a disability than to die!

 

Tip of the week:

 

It is imperative to have the right disability coverage. Most group plans end coverage at 2 years. What will be the source of income thereafter? Before buying any disability plan, check for any 2 year limitations and restrictions. To save money, you can also purchase a personal disability plan to "top-up" your group coverage and extend any 2 year limitations.

 

If you are on a tight budget, it is advisable that you first obtain proper disability insurance to protect your valuable income, and then buy term life insurance with the remaining dollars.

 

Next page >

 

Go to question #5.

 

 

 

Click a link below to jump to another related article:

 

Learn more about life insurance.

 

Learn more about critical illness insurance.

 

Learn more about disability insurance.