Disability Insurance Needs

One of the most common causes of income loss is through a disability. While most disabilities cause only temporary loss of income, any income loss can be devastating if you are not financially prepared. This calculator helps you determine how much disability insurance you may need to cover expenses during such a disability.

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Definitions

Monthly net income
Your monthly net income. This calculation is done on an individual basis. Do not include your spouse's income.

Current monthly expenses
Your total monthly living expenses. Remember to include your home or rent payments, food, clothing, gas, phone and other monthly expenses.

Monthly expenses during disability
Your monthly expenses while you are disabled. This amount is usually a little less than your original monthly expenses. The default value for this field is calculated as 70% of your current monthly expenses. You should keep in mind however, that many expenses such as your mortgage, rent, utilities and food will most likely remain the same as before you were disabled.

Length of disability
The number of months you expect a disability will prevent you from working. A common mistake is to underestimate the time it takes to get back to work.

Current monthly coverage
Your current monthly disability coverage. Make sure to include any disability coverage supplied by your employer.

Length of coverage
Number of months that your current monthly coverage will last.

Annual inflation
What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2004. If you are disabled for a short period of time, inflation is usually not a very important factor. However, you may need to consider the effect of inflation if you remain disabled for more than a few years.