Only 30% of workers currently have some form of disability insurance (Source: Dow Jones News Service, January 31, 2003). Many ignore this coverage, hoping they won't be affected by a disabling injury or illness. However, between the ages of 45 and 65, approximately 50% of all individuals will suffer a disability lasting at least three months (Source: Knight Ridder Tribune Business News, March 1, 2003). One out of seven workers will suffer a disability lasting five years or longer (Source: CNBC, 2003), with the average disability lasting 12.7 months (Source: Knight Ridder Tribune Business News, October 13, 2002).

You should consider disability insurance if your current assets won't support you until age 65. To see if this is the case, take time to review your available options. Determine how much you need monthly to pay essential expenses and what income sources you would have if you couldn't work. Review the following questions to determine if you have adequate coverage in this area:

• Will Social Security provide disability benefits? The criteria for benefits are very strict -- you must be unable to work at any job, expect to be completely disabled for at least one year, and have contributed to the Social Security system for a sufficient length of time. Approximately two-thirds of claims are initially denied (Source: Kiplinger, 2003). Even if you do qualify, benefits tend to be modest. Your annual Social Security Statement indicates what disability benefits you can expect.
  
  
• Does your employer provide disability insurance? Many companies provide short-term disability insurance which covers 100% of your salary for three to six months. Long-term disability insurance is typically less common and less generous than short-term plans. Policies frequently have strict definitions of disability, pay no more than 60% of your base salary (bonuses and profit sharing generally aren't included in benefit calculations), pay benefits for only two to five years, and don't provide cost-of-living adjustments.
  
  
• Do you want to use other personal assets for a potential disability? You can access Individual Retirement Accounts (IRA's), annuities, or 401(k) plans without penalty if you are disabled. But first decide whether you want to risk depleting your retirement fund or children's college fund due to a long-term disability.
  
  
• How much of your income should disability insurance replace? You should ensure that your available resources and benefits from disability insurance equal at least 60% of your pre-tax salary. Many insurers limit coverage from all disability policies to 60% to 70% of your salary to provide an incentive to return to work. Make sure the total of your employer-provided insurance and individual insurance does not exceed the maximum benefits that will be paid or you could end up paying for coverage you can't receive. Insurers typically require documentation of income and may have a limit on the maximum monthly benefit they will pay.
  
  
• Are there any significant differences between employer-provided insurance and individual policies? You have little choice in the benefits offered by your employer, while an individual policy can be tailored to your needs. The most significant difference, though, is the tax treatment of any benefits. If premiums are paid by your employer, benefits are taxable. If you pay premiums, benefits are tax free. This will have a significant impact on the amount available to pay your bills.
  
  
• What provisions should you look for in a disability policy? There are several provisions you should pay special attention to, including:
  
  The definition of disability. There are three basic types of coverage -- own occupation, any occupation, and income replacement. Own occupation pays benefits when you can't work at your specific occupation. Many professionals, such as doctors and lawyers, opt for this coverage. However, due to substantial claims, this coverage is now more difficult to obtain. You may only be able to find own occupation coverage for up to 24 months, with the policy then converting to any occupation coverage. Any occupation coverage means you must be unable to work at any occupation for which your training and education would be suited. Income replacement policies pay the difference between what you were earning before the disability and what you are earning now. Income replacement coverage may provide the best balance between costs and benefits.
  
  Noncancelable or guaranteed renewable. Noncancelable means you can renew the policy every year at the same premium. Guaranteed renewable means you can renew the policy every year, but the premium can increase as long as it is not done in a discriminatory manner. Either provision will ensure the policy can't be canceled due to medical problems.
  
  Waiting period before benefits begin. If you have other resources to rely on for the short term, such as sick leave, personal savings, or short-term disability coverage, you can increase the waiting period to reduce premiums. Waiting periods can range from one week to two years, but the most common option is a 90-day delay in benefits.
  
  Length of benefits. Disability insurance is designed to protect your financial situation in the event of a serious disability, so coverage should last for the long term. You can obtain lifetime benefits, but you may only need benefits until age 65, when presumably you could receive Social Security and other retirement benefits.
  
  Residual benefits. With this provision, you can go back to work on a part-time basis and still receive partial benefits.
  
  Cost-of-living adjustments. This rider increases your benefits in line with inflation. An additional coverage clause allows you to obtain additional coverage without a medical exam.