Disability insurance: How much do I need?

Considered by experts to be just as vital as life insurance, disability insurance protects your income should you become unable to work due to an illness or disability. If a debilitating condition were to prevent you from working, and thereby earning money, how would you support yourself and/or your family, and pay for living expenses? The answer is, you would not. This is why disability insurance is so highly recommended. It protects one of your most valuable assets: your ability to work and earn an income.
When you decide to obtain disability insurance, it is important to ask yourself: how much disability insurance coverage do I need? The answer depends on how much of your income would need to be replaced if you became unable to work. Disability insurance usually covers at least 50% or 60%, but preferably 80%, of your after-tax income, or your net. This amount varies from person to person. Disability insurance policies do not provide 100% of your previously earned income. Doing so would deter you from returning to work.

Creating an Expense Record
To properly decide how much disability coverage you really do need should you become disabled, the first thing to do is make a budget, or expense record. When preparing your expense record, include the following factors:

- Mortgage, including property tax, or rent;
- Home-owners or renter's insurance;
- Car payments;
- Car insurance;
- Utilities;
- Food;
- Clothing;
- Bank loans and credit card payments;
- Medical expenses and health insurance;
- Life insurance;
- Monthly savings and investments;
- Any other monthly expenses (such as education).

The monthly totals of these expenses can provide you with an accurate estimation of the amount of disability coverage you need.

For example, you may prepare an expense record that looks like this:

Mortgage: $900
Home-owner's Insurance: $120
Car payments: $500
Car insurance: $160
Utilities: $500
Food: $300
Clothing: $100
Bank loans/
credit card payments: $150
Health insurance: $160
Life insurance: $80
Monthly savings/
investments: $300

Total monthly expenses: $3270

With your total monthly expenses totaling $3,270 in this example, you would want to seek to obtain enough disability insurance to receive monthly benefits that would cover this amount.
It is important to remember that you are attempting to figure how much coverage you need if you were disabled and unable to work. This may include taking into account the following factors:
- Medical expenses. With a disability or illness, your medical expenses are most likely to increase, especially if your health insurance does not provide you with protection if you are unemployed;
- Living expenses. When planning your expense record, imagine the possibility of developing an illness or disability that not only does not allow you to work, but severely limits your ability to perform daily tasks. You may need to include monthly expenses in your budget such as lawn service, cooking services, or cleaning services.
- Childcare expenses: If you have children you may need to include expense figures for daycare or sitting services, if you have not already. Even if your disability allows you to be at home, it may be of a kind that limits your ability to care for your children. Childcare and/or child sitting services may need to be considered should your situation necessitate it.

Properly estimating possible cost fluctuations whether up or down, can help you choose a disability policy that provides the most protection.

Your insurance provider will ultimately determine the maximum amount of coverage you can obtain based on factors such as your age, gender, income, health, and if you are entitled to any other disability benefits.Many times, if this is not sufficient, you may purchase additional coverage. However, purchasing disability insurance can be very expensive. After you have created an expense record and decided on the amount of disability insurance you would like, you may find that you cannot afford such extensive coverage. If this is the case, keep in mind these 3 points:
- Buy the best disability insurance you can afford;
- Save money by not paying for coverage you don't need;
- Any disability insurance coverage is the amount you need: some coverage is far better than none at all.