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Protecting your earned income with disability and life insurance

Help protect your family’s financial future in the event of disability or death with these insurance solutions.

For most people, the ability to earn income is among their most significant financial assets. And if you suddenly couldn’t work due to death, illness, accident or injury, your family’s financial future could be at risk. Even a temporary loss of income could substantially impact your savings, retirement plans and other goals. 

An Ameriprise financial advisor will help you find solutions that can add a layer of protection by helping to protect your income if something unexpected happens. 

Here’s what to know about disability insurance and life insurance as a form of income protection:

In this article: 

Disability income insurance 

What it is: Disability income insurance is like having insurance for your paycheck. If an injury or illness prevents you from working, it replaces a percentage of your earned income to help you pay your bills and maintain your lifestyle. 

Who it’s for: Anyone who relies on their earned income to pay expenses and save for future goals. 

Why it’s needed: Disability income insurance can protect your income during your core earning years —  when any interruption could substantially impact your ability to pay your bills and save for your goals. Many people can elect coverage through their employer as part of an employer-sponsored group plan. Group disability income insurance often offers affordable coverage, but typically only covers 60%1 of your salary and may not cover bonuses, commissions and retirement plan contributions. In addition, for most employer-based plans, as soon as your employment ends, so does your coverage.

An individual disability income insurance policy can provide additional coverage if you are self-employed or offer supplemental coverage to your group plan.

If you have a group policy through work, adding an individual policy allows you to:

  • Make up for a portion of your income not covered by group insurance benefits
  • Have coverage if you change jobs
  • Customize the coverage to include annual cost-of-living adjustments
Source: RiverSource Life disability insurance claims payments through 12/31/21. The above is for illustrative purposes only and is not intended to be an inclusive representation of all claims.

What it costs: Generally, it costs 2 to 3% of a person’s salary to cover up to 80% of their after-tax income during a disability.1 The following factors may also affect your cost:

  • Age
  • Gender
  • Occupation
  • Length of waiting period (also known as the elimination period)
  • Length of benefits
  • How the policy defines disability 

Other considerations: When looking at plans, consider:

  • How the policy is paid out: Some policies pay out only if you can’t work any job for which you’re qualified, while others pay out if you can’t perform a job in your occupation. Some policies will pay a benefit if you can work part-time, while others only pay if you can’t work at all.
  • How much coverage you can purchase: An insurer will consider other sources of disability insurance to determine how much coverage you can buy, and will typically cover up to 80%1 of your after-tax income during. However, because you will pay for any individual coverage with after-tax dollars, the income from those benefits is typically tax-free should you become disabled.

Advice spotlight

Supplement your employer life and disability insurance for more comprehensive coverage. Most employer-provided policies do not offer enough coverage to fully protect your income in the event of disability or death. Additionally, these policies are usually tied to your employment, meaning you may lose coverage if you switch jobs. 

Life insurance 

What it is: In the event of your death, life insurance can help replace your income so your loved ones can continue to maintain their quality of life and fund future goals. Income replacement is a main reason many people have life insurance coverage. 

Who it’s for: Anyone with dependents – children, a spouse or partner, parents or other relatives. Life insurance helps to protect the value of your future income, as well as the value of support you provide for your family that would otherwise have to be paid for (for example, childcare, home and yard maintenance, etc.). That’s why life insurance is equally important for stay-at-home parents and caregivers who provide a large support role for the family.

Why it’s needed: In the event of your death, your policy’s payout typically goes directly to your beneficiaries, who can use it to cover costs in your absence, whether that’s daily expenses, a mortgage, childcare, higher education or a partner’s retirement. 

How much is enough: Each person’s situation is different, but for income replacement a common starting point is to multiply your annual salary by the number of years you desire to have coverage. Beyond that, account for additional expenses like debt, a child’s college education, rising living expenses and burial costs. 

Term or permanent life insurance? When purchasing life insurance, you have many options, but one key choice is deciding if you want term life insurance or permanent life insurance. Both help ensure your dependents are financially cared for if you were to pass away unexpectedly, but there are major differences, so evaluate which policy type or combination of policy types will suit your needs.  

Protect your income and financial future

Talk to your Ameriprise financial advisor about the options available to protect your income and how to tailor coverage to help meet your specific needs. 

How should I adjust my insurance coverage as I get closer to retirement? My work provides some disability and life insurance coverage. How much supplemental disability and life insurance should I obtain? What factors should I consider when deciding between different disability and life insurance policies?

When you’re ready to reach out to an Ameriprise financial advisor for a complementary consultation, consider bringing these questions to your meeting.

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The unexpected happens. An Ameriprise financial advisor will help you plan for life’s many uncertainties.

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At Ameriprise, the financial advice we give each of our clients is personalized, based on your goals and no one else's. 

If you know someone who could benefit from a conversation, please refer me.

Background and qualification information is available at FINRA's BrokerCheck website.

1Help protect your income and future goals, RiverSource, May 2023.

 

This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts or strategies mentioned.  The information is not intended to be used as the primary basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor.  Please seek the advice of a financial advisor regarding your particular financial situation.

 

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

 

The initial consultation provides an overview of financial planning concepts.  You will not receive written analysis and/or recommendations.

 

DISABILITY INCOME INSURANCE

 

Issued by RiverSource Life Insurance Company, Minneapolis, Minnesota, and in New York only, by RiverSource Life Insurance Co. of New York, Albany, New York. Affiliated with Ameriprise Financial Services, LLC.

 

NOT A DEPOSIT • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT BANK, CREDIT UNION OR SAVINGS & LOAN GUARANTEED

 

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

 

Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SPIC.


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