Most of us live paycheck to paycheck. If you are dependent upon what you earn to pay for living expenses, a sudden inability to work because of an accident or illness can be financially devastating. That’s why disability insurance is such an important coverage to own. The reality is that most people have little or no disability insurance to protect them if they were ever faced with this scenario.

One reason for the lack of coverage is cost. Disability coverage can be expensive especially for higher risk occupations. Premium rates are determined based on factors, such as your age, health history, occupation and selected benefits. Nonetheless, if your premiums amount to 1-3% of your income, consider it a small investment. Sure you might be able to use the insurance money elsewhere, but if you were to become disabled, what would you do?

To ensure adequate coverage, you need a policy that provides at least 60 percent of your gross income while disabled. Since disability insurance premiums are usually paid with after-tax dollars, the benefits would be tax-free. A policy providing 60 percent of your pre-tax income should provide a benefit that is close to your current take home pay.

You should also consider how the policy defines disability. Some policies only pay if you experience a total disability and cannot work at any job. Partial disability protection is a must. With partial disability protection, if you were able to work part-time during a period of disability, your policy would provide benefits equal to a percentage of your income loss.

Look for policies that are both non-cancelable and guaranteed renewable. With these policies, the insurer cannot raise your premium or cancel your policy if your health deteriorates. Be sure your policy includes an inflation rider that offers a cost of living increase during a period of disability. Another option to consider is a future insurability rider, which permits you to purchase additional coverage as your income increases regardless of health or changes in your activities or occupation. Some companies also offer transition benefits that pay benefits in proportion to any income loss that you may encounter when you return to work after being disabled.

The factors to consider that will affect your rate are the policy’s waiting period and maximum benefit period. If you can afford to delay the start date of your benefits until 90 days after you become disabled, you can significantly lower your premium. However, this means you will need to have sufficient savings to cover expenses until benefits begin. Likewise, purchasing a policy that offers benefits until age 65 is a good idea. Again, you must have adequate retirement income available at age 65 to replace your disability benefits.

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