Tax Tips by Kelly Bullis: Don't overlook disability insurance coverage

Say "insurance" to most people and auto, health, home, and life are the variants that spring to mind. But what if an illness or accident were to deprive you of your income?

As a former cancer patient, this is a subject near and dear to my heart. What happens to you financially if you are unable to work for any long period of time (say more than one month)? I'm now cancer free, but it required an investment of time to allow my body to fully heal. I was one of the lucky ones. No chemo or radiation treatments, just surgery that got me back on my feet in just under three months.

Statistics show that your chances of being disabled for three months or longer between ages 35 and 65 are almost twice those of dying during the same period.

Even people with financial savvy overlook disability insurance. The fact is that most individuals should consider disability insurance in their financial planning. The good news is that disability income is usually tax free.

To get the right coverage for you, take the following steps:

• Scrutinize key policy terms. First, ask how "disability" is defined. Some policies use "any occupation" to determine if you are fit for work following an illness or accident. A better definition is "own occupation," whereby you receive benefits when you cannot perform the job you held at the time you become disabled.

• Check the benefit period. Ideally, your policy should cover disabilities until you'll be eligible for Medicare and Social Security.

• Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.

• Disability insurance is not inexpensive. Plan to forgo riders and options that boost premiums significantly. If your budget won't support the ideal benefit payment, consider lengthening the elimination period.

As a closing thought, let me share another personal story. One of my best friends turned up with terminal cancer. He had just signed up for this type of insurance with his employer the previous year. It meant that he could spend the remaining time (turned out to be two years) with his family in relative comfort without the additional burden of worrying about how to pay day-to-day bills.

The moral of the story? We tend to think, "It won't happen to me." and then it does. Are you prepared?

Ask your insurance agent about the options available to you. Talk to your CPA if you want help analyzing your actual take home cash needs.

• Kelly Bullis is a Certified Public Accountant with more than 30 years of experience. Contact him at 882-4459.