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What is More Important: Life Insurance or Disability Insurance?

By on March 14, 2014 in Insurance, Life Insurance

What is More Important: Life Insurance or Disability Insurance?When looking at the different types of insurance your family needs some of the common types discussed include life insurance and disability insurance.

While both are ultimately important, if you only had enough money to purchase one type of policy which one should you focus on?

One protects your family while the other protects you and your family from the loss of your income. Both are critically important pieces of insurance to have for your family, but which one should you choose if you are strapped for cash?

The Importance of Disability Insurance

You are much more likely to be injured to the point of disability in an accident than you are to be killed outright. This makes disability insurance a critical need for your family.

If you die in an accident, that’s it. It is unfortunate and your family must do without your income, but once your funeral is paid for the expenses are over.

When you are disabled your family not only loses your income (assuming it is a full disability), but now they must also pay for your expenses. And unfortunately when you become disabled your expenses usually go up for health reasons.

Protecting your income is critically important and is the main driver in your need for disability insurance.

The Importance of Life Insurance

Life insurance is no less important for families. It is recommended you have at least ten times your salary in life insurance for both working spouses and those that stay at home. A sudden loss of your income due to your death is emotionally and financially trying for your family.

Life insurance kicks in to provide stability to your family in their worst time. Having multiple years of your income given to your family through a term life insurance policy gives them adequate time to grieve while still being able to pay off bills.

If your spouse wasn’t working when you passed away, adequate life insurance gives them time to re-enter the workforce, downsize the home, or both.

Choosing Between Life Insurance and Disability Insurance

With a limited amount of money to go around for your insurance needs, which of the these two policies should take precedence?

It truly depends on your situation, your overall financial assets, and any other coverage you may have. For example many employers provide a disability policy that covers you up to your base salary. If you have this option you can rely on it (for the mean time) and spend your money on a term life insurance policy.

However, if you are completely uncovered on both sides of insurance than it can make more sense to spend the income on disability insurance. You are risking your family being put into financial distress if you pass away unexpectedly, but once you are buried a majority of the financial risk is over.

On the other hand if your already cash-strapped family has to not only lose your income, but cover your higher expenses due to being disabled, this can be a much worse financial situation to be in.

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