Sensible Perspectives

Sensible Scenarios: Do I Need Disability Insurance?

Posted by on September 19, 2018

Remember when you were a kid and grownups asked you what you wanted to be when you grew up? That was then, and this is now. You are a grownup. You’ve finished school, gone to work, and started a family or a business.

Now you’re settled, but you still have dreams. Maybe you want to retire on a secluded stretch of beach or open a haven for stray dogs or send your grandkids to private school. Getting to that future can seem more mysterious than becoming a fireman or a ballet dancer did when you were small. How can you transform your daydreams into reality?

Your Sensible Financial advisor can help you flesh out your dreams and develop a plan to realize them from your current financial situation. If you’re curious about what that sort of advice looks like, we’ve put together a few illustrative examples.

Periodically, we’ll post more stories to illustrate the Sensible approach.


Bob Gillman is about to start his new software engineering job at a major high-tech firm in Silicon Valley. He’ll be making more and getting better benefits for his family. He’s excited for this new opportunity and anxious to make the most of it. He and his wife, Lydia, decide that it would be a great time to make long term financial plans. The couple have two children. With their oldest just starting private school and their youngest not far behind, Bob and Lydia want to know where they stand and what moves they should make to ensure the financial health of their family.

Many of Bob’s questions center around his new company’s benefits package which includes life and disability insurance. Bob and Lydia have different opinions on whether disability insurance is even necessary for a healthy man of 35. Bob feels it’s too expensive, especially since he’s not a risk-taker, drives carefully, and keeps fit. Lydia disagrees and would rather err on the side of caution.

The Gillmans’ Sensible Financial advisor analyzes their financial situation and finds that while Bob lacks disability insurance, he has more life insurance than he needs. He has whole life when term life would probably suit him better. Term life is usually less expensive and covers a set period as opposed to whole life which covers the entire life of the insured. With a term life policy, Bob could reduce the face amount and the premium gradually over time as the Gillmans continue to save and pay down their mortgage. He approves of reducing and consolidating his life insurance coverage but bristles at the idea of buying disability insurance.

The purpose of insurance is to protect assets or income against a low probability/high impact event. Disability insurance is designed to replace lost earnings in case a serious illness or injury prevents you from continuing to earn your regular income for a prolonged period. The Social Security Administration estimates the odds of becoming disabled for three months or longer during one’s career is 25%. According to the Counsel for Disability Awareness, only 10% of those disabilities are due to injury. The remainder stem from illnesses like cancer and other chronic diseases.

During the financial planning meeting, the Gillmans’ Sensible advisor relates a situation he encountered during his career to illustrate the value of disability insurance. One client who decided against buying it became ill with a serious heart condition and couldn’t work. Without disability insurance, his family had to scale back their lifestyle drastically and needed financial support from their extended family. Instead of paying a few thousand dollars a year for insurance, they faced the financially devasting loss of $150K a year in lost earnings.

Because of the Sensible Financial advisor’s advice and his wife’s concerns, Bob changed his mind and bought his company’s group disability insurance and a small supplemental policy from a private carrier. He paid for the new coverage with the money he saved by consolidating several whole life policies into one term policy.

Both Bob and Lydia sleep better knowing their family is protected.