So much is written about when and how to purchase an individual disability insurance policy. However, little has been written about when to drop the policy.
When to buy. It is important to protect your income when you are dependent on your earnings. If you and/or your family rely on your income or your ability to earn an income, it is important that it is protected. Ask yourself the following questions to determine if you need an individual disability insurance policy:
- Do you rely on your income to pay your bills?
- Do you need your income to save for your future? Do you need your income to contribute to your retirement plan?
- Do you have outstanding debt such as student loans or a mortgage that would require payments even if you couldn’t work?
- Are you at the early part of your career where you will have future earnings that you are counting on for your future?
- Are you in school, medical school, law school or medical residency?
When to taper off. You may be at a point in your life or career where you may not be ready to drop your policy but you may be able to make some changes to reduce your premium.
- Have you paid off a lot of debt?
- Have you accumulated a lot of assets?
- Are your expenses less than 50% of your take home pay?
If you are in this stage of your career, you may make the following changes to reduce your premium:
- Reduce your monthly benefit
- Remove the COLA cost of living inflation rider
- Increase the elimination period
- Reduce the benefit period
- Remove increase options
If the following factors apply to you, you may be able to drop your disability policy:
- You are no longer working
- You no longer reliant on your income. You can either live off of your accumulated assets or your spouse or significant other’s income.
- You are able to financially retire and live comfortable on your assets.
Before you drop your policy, there are a few other considerations to take into account.
- If you have had an adverse change in health, you may not be able to go out and acquire coverage. If you drop your policy, you may not be able to go out and get another policy in the future.
- If you are temporarily not working. If you are taking time off from working to take care of loved ones or are taking a sabbatical, you may want to keep your coverage. If you were to become disabled during this period of time, the policy would still cover you if you were totally disabled. When you resume work, the policy would continue to cover you if you were totally or partially disabled.
- Even if you have enough assets to retire, you may want to continue your policy if you wish to continue to save your income while disabled.
Acquiring disability insurance, changing your policy and dropping your disability policy all require careful consideration. Before making a final decision, it is important to contact your insurance broker and ask for their expert opinion.