Protect Your Future Income With Disability Insurance

The following is a transcript of "Money Girl's Quick and Dirty Tips for a Richer Life," a podcast from QuickAndDirtyTips.com. The audio program is available via RSS feed here and at TheStreet.com's podcast home page.

Hello and welcome to Money Girl's Quick and Dirty Tips for a Richer Life.

Today's topic: Insuring your biggest asset.

A listener named Marv emailed me with this request:

I purchased a long-term disability insurance policy several years ago after a friend of mine fell off a ladder and was disabled for a long time. However, I had trouble finding objective advice on how to research an insurer and what kind of policy was appropriate for me. I'm sure I got the coverage I wanted, but I didn't have many choices to do adequate comparison shopping. To this day, I don't hear much about this topic.

You're wise, Marv, to have gotten yourself disability insurance. It's the most important insurance coverage to have. It's also one of the most overlooked. And you're right, it doesn't seem to get much attention, given how important it is.

Insuring Your Biggest Asset

Disability insurance insures what's extremely likely to be your biggest asset: your future income. That's the reason disability insurance is so important. It's more important than life insurance, health insurance and auto insurance.

If you depend on your income to pay your bills, you need disability insurance. And if you happen to be independently wealthy and don't need to work, you can stop listening to this episode right now. You don't need disability coverage.

The Risk of Disability Is Real

If you're unable to work because of a disability, disability insurance pays you your income. The odds of becoming disabled are surprisingly high. According to the Social Security Administration, a 20-year-old worker has a 30% chance of becoming disabled before retirement age. By way of comparison, the chances of a 20-year-old dying before age 65 are only 17%. This is the reason that disability insurance is more important than life insurance. Because the odds of becoming disabled are so high, disability insurance is expensive. Premiums can be as much as 1% to 3% of your annual income.