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just be aware that social security and employer-sponsored plans aren’t the only types of DI that you may have as an option.

If you are eligible for any employer disability benefits, you can contact your employer to see what type of benefits you would receive. A good idea is first to ask your employer about any sick leave or wage continuation programs they may have because these would act as a form of short-term coverage. Whatever you wish to include, be sure you are aware of what the tax ramifications would be.

Add up any monthly benefits you are counting on receiving and subtract that number from your net income. This resulting number is the amount of money you would still need to help cover your bills and replace your income. (See Figure 12.1 for a sample worksheet.) Of course, any type of investment income (i.e., dividends or interest) and spousal income (if your spouse works) would still continue, and so, are ignored as part of the beginning gross income amount.

There are some provisions to consider when purchasing DI. First, many policies offer a cost-of-living adjustment (COLA), to help protect you against inflation. If you purchase a policy that will pay you a flat benefit of $3000 per month now, that $3000 won’t have the same purchasing power in five years. With a COLA, the benefit is annually adjusted for inflation, is usually in line with the Consumer Price Index and takes effect once the insured is disabled. However, your insurance company may cap its rate to avoid for super-high adjustments.

Many insurers will also offer a waiver of premium option. For those insurers that offer it, it will be automatically included in your policy. This provision is especially beneficial because it says that once you are disabled for a period of time (normally 60 or 90 days), all your future premiums will be waived for the duration of your dis- ability. This also acts somewhat as an increase in your benefit because you will retain the premium amount in your pocket, rather than paying it out to the insurance company.

Then there is the guaranteed insurability option that allows you to purchase additional disability income insurance while you are still healthy. With this provision, you don’t have to prove insurability again, which is nice.

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