The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 14. Protecting Your Income

WHAT DOES DISABILITY insurance have to do with a book on 401(k) plans? A good deal. Your income—and your ability to keep bringing it in and enhancing it—is your single biggest asset. So the biggest threat to you is an illness or accident that would cut off that income.

If you are a man over thirty-five, there is one chance in five that you will be disabled and unable to work before you retire, according to the National Association of Insurance Commissioners. A thirty-five-year-old woman faces a nearly one-in-three risk of disability lasting at least ninety days before reaching retirement.

You need health insurance to pay medical bills. And you need disability income insurance to keep income coming. Many employees assume that they have adequate coverage through their employee benefit plan and that they don't need to buy an individual policy. But at least 75 percent of American companies do not provide disability policies, while those who do usually provide a short-term policy to tide you over for a period of days or weeks.

If you buy an individual disability policy and pay the premiums, your benefits will be tax-free. If your employer pays the premiums, benefits are taxable. To buy disability insurance, you must prove that you are in good health and that you have an income. Don't wait until you need it. You may not qualify.

What should you look for? Policies are both complex and expensive: the more complex, the more expensive. "There are a lot of bells ...