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Your Disability Insurance Policy

Getting the Right Amount of Disability Insurance Coverage

While you may have already determined that you need disability insurance, finding the right amount of coverage can be difficult. You want to make sure that you have enough money to last you until you can work again; or for the rest of your life if you could be disabled for that long. However, purchasing too much coverage too early will result in high premiums and a loss of income for you now.

The following will help you calculate the optimal level of coverage for you. Make sure you still communicate with an insurance agent or broker, as they will be able to spot mistakes in your calculations, offer alternatives or act as an overall guide. And remember that we always have our Free Disability Insurance Quote request when you are ready to review your options with an agent.

You will first want to determine your net after-tax pay that will be lost if you are disabled. You use this Disability Insurance table to make a rough estimate. However, actually working it out with your monthly income is a good idea. Ideally, you should look to cover 80% of your income, and 60% might also be feasible. Here is how to make a slightly more precise determination.

Subtract your TOTAL INCOME AVAILABLE from your TOTAL MONTHLY EXPENSES. The resulting sum is what you should look for in terms of Monthly Coverage for a Disability Insurance Policy.

Calculated Monthly Coverage for Your Policy

[Total Income Available] - [Total Monthly Expenses] = Monthly Cover for Policy

To calculate your Total Income Available, add the following incomes on a monthly basis:

  1. Individual Disability Coverage
  2. Group Disability Coverage
  3. Estimated Monthly Social Security Benefits
  4. Other Monthly Earned Income (Investments, Interest, etc.)

To calculate Total Monthly Expenses, add the following nine monthly expenses on a monthly basis.

  1. Home Fees: mortgages, property taxes, or rent
  2. Automobile Expenses: automotive insurance, car payments
  3. Utilities: heat, hot water, electricity, cable, etc.
  4. Necessities: food, clothing, etc.
  5. Debt: bank loans, credit card payments
  6. Medical Expenses: hospitals bills, prescriptions
  7. Other Insurance: health and life
  8. Investments: monthly savings, stocks, bonds, etc.
  9. Other: education, etc.

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