Disability Insurance Needs
One of the most common causes of income loss is through a
disability. While most disabilities cause only temporary loss of
income, any income loss can be devastating if you are not
financially prepared. This calculator helps you determine how much
disability insurance you may need to cover expenses during such a
disability.
Definitions
- Monthly net income
- Your monthly net income. This calculation is done on an
individual basis. Do not include your spouse's income.
- Current monthly expenses
- Your total monthly living expenses. Remember to include your
home or rent payments, food, clothing, gas, phone and other monthly
expenses.
- Monthly expenses during disability
- Your monthly expenses while you are disabled. This amount is
usually a little less than your original monthly expenses. The
default value for this field is calculated as 70% of your current
monthly expenses. You should keep in mind, however, that many
expenses such as your mortgage, rent, utilities and food will most
likely remain the same as before you were disabled.
- Length of disability
- The number of months you expect a disability will prevent you
from working. A common mistake is to underestimate the time it
takes to get back to work.
- Current monthly coverage
- Your current monthly disability coverage. Make sure to include
any disability coverage supplied by your employer.
- Length of coverage
- Number of months that your current monthly coverage will
last.
- Annual inflation
- What you expect for the average long-term inflation rate. A
common measure of inflation in the U.S. is the Consumer Price Index
(CPI). From 1925 through 2011 the CPI has a long-term average of
3.0% annually. Over the last 31 years highest CPI recorded was
13.5% in 1980. If you are disabled for a short period of time,
inflation is usually not a very important factor. However, you may
need to consider the effect of inflation if you remain disabled for
more than a few years.
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