If you are working with a tax preparer who merely prepares your tax returns, you may not be receiving full value for such services. One of the advantages of using an experienced tax professional for tax preparation and tax planning services is that you are also kept abreast of various financial and retirement strategies. In other words, you want to make sure that your tax consultant is advising you on all facets of your financial situation, not just tax preparation.
While most persons realize that they need life insurance protection, there are those who fail to realize that the chances of them becoming disabled are three and a half times greater than them dying during their working years. Interestingly, accidents are generally not the cause of disability, but rather are caused by back injuries, cancer, heart disease and other illnesses. While the risk of dying from hypertension is down 73% because of medical advancements, the risk up hypertension disabling a person is up 70%. The same holds true for heart disease (death down 28% with disability increasing 44%), cardiovascular (down 48%; up 36%), and diabetes (down 27%; up 36%).
Thus you need to ask yourself if you are prepared to whether the financial storm if you become disabled. Since the average disability claim is 34.6 months, do you have enough emergency savings? If you maintain a household budget showing the expenses you incur each year, then you will know how much money you need to hold for such an emergency. If you do not have a household budget, there is no time like the present to make such a budget.
Once you have the household expenses summarized, the next step is to work on the sources of income you can depend upon if disabled. The usual sources of disability income are the social security administration (SSA), employer-sponsored disability group plans, and private insurance. Keep in mind when computing your emergency fund reserve that some programs begin to pay benefits three to six months after you become disabled.
If you are depending upon the SSA for disability benefits, keep in mind that the SSA has a very strict definition of disability and the process to be approved for benefits can take several months or years. The last time I looked at the average SSA disability benefit, it averaged a little over $1,100 per month. The SSA pays disability benefits if you are unable to work in any capacity, not just at your chosen occupation. If you visit www.ssa.gov and do a search on this website for “disability evaluation”, you will find a listing of impairments that are severe enough to qualify for disability benefits. While the SSA’s benefits may be a valuable resource for a long-term disability, you will need a source of funds for the immediate future.
If you are an employee, don’t assume that you are financially secure because your employer provides disability insurance as a company benefit. A typical employer group plan usually pays between 40% to 60% of your gross pay, and could be capped to a fixed monthly amount. If you employer’s plan pays a maximum of $5,000 per month, that means your gross income will be capped at $60,000. If your employer pays the disability insurance premium, the disability proceeds you receive will be considered taxable compensation to you. Thus that $60,000 amount will be reduced by the taxes due. You also need to know how long will your employer disability benefits be paid . . . until death, until retirement, or for two years? If you have yet to become familiar with the details of your employer’s plan, you need to do so. If the benefits received from your employer’s plan do not cover all of your household expenses, then perhaps you need a private disability policy.
A private disability policy can be used to supplement the benefits you receive or to extend the coverage period. The range of premiums paid vary by policy and are dependent upon age, gender, occupation, amount of coverage, length that benefits will be paid, the elimination period before payments will be made, inflation protection adjustments, if the policy will be cancellable or non-cancellable, and if the policy includes a “residual” benefits rider.
If you are a business owner, in addition to considering your personal disability insurance needs, you also need to consider purchasing “overhead disability insurance”. These policies pay the normal business expenses to keep your business afloat while you are disabled.
To meet the needs of our clients, we work with a strategic partner who is a disability insurance expert to ensure that the client receives a disability policy that meets their needs within their budgetary restraints.
If you want to learn more about personal or business disability insurance and how working with a tax professional will benefit you, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA officeto discuss your situation. You can also schedule a consultation at Click Here.
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