Q & A
Long-term disability insurance vs using retirement savings in the event of permanent disability?
Full Question: My husband is 54 and is looking at purchasing long-term dbl ins. His financial advisor said it would be wiser to invest the money elsewhere and to rely on retirement savings that don’t have a tax/penalty consequence in the event he becomes disabled. What is the wisest thing to do at his stage in his life?
Answer: The investment versus insurance decision is always challenging and the answer to the question without knowing the details is: It Depends. But I can pass on some of my thoughts.
I think the first thing to do is to remember, we purchase insurance to transfer risk from ourselves to someone else…not to make a “better” investment. Think of it this way. You could also skip collision and comprehensive coverage on your auto and save the premiums. If you have an accident then use the saved money to fix the car. If you don’t have an accident, then you have the cash. But, most people won’t do that as they don’t have the resources to accept the risk of being unable to fix or replace the vehicle.
I also think it is wise to consider that you may need the insurance coverage tomorrow versus at “some” date in the future. So, here are some questions to ask yourself…
- Do you have enough in investments today to fund your minimum essential living expenses until age 65?
- If the answer to #1 is yes, then ask…Will the assets plus any pensions and Social Security fund your minimum essential living expenses until your both pass away (the probability that one of you will live into your 90’s is higher than you might think)?
- If your husband becomes disabled are other income sources possible (like your going back to work or help from family members)?
If you answer “Yes” to #1 and #2 or can change them to a yes with #3, you might be candidates for skipping the Disability Insurance.
A couple of other thoughts.
- Consider getting a “second opinion” from another financial advisor (in my opinion use an independent fee-only financial planner) who knows all the facts and circumstances of your situation
- Your husband is 2 times more likely to suffer a long-term disability than to die prematurely
- Your expenses may actually go up if your husband is disabled, as medical expenses may go up or he may need some sort of custodial care.
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