Ask Terry Questions Disability insurance or college fund?

Disability insurance or college fund?

By Terry Savage on January 14, 2016 | Insurance & Annuities

What are your views on Disability Insurance? I took out a policy 5 years ago after my divorce because I was worried about supporting my kids if something should happen. I’m now remarried, though my husband, a teacher, makes 1/3 of my salary. I am thinking I’d rather invest the money into my kids’ college funds.

Terry Says:  Gosh, this is a tough call.  I was a single mother, and paid the price of disability insurance every year — until I got to the point where long term care insurance made more sense.    And,  I have always been “over-insured” because I have a very vivid imagination (and people tell me their stories!) of financial hardship.   The “flip” answer is to do both!  It isn’ t that simple I know.

But first review the terms of your disability insurance.  If you paid with after-tax dollars, any benefits come to you free of taxes.  The definition of “disability” is important in this decision.  Does the insurance come into play if you can do “any” work –or just your own profession?  If it’s “any work” then you are probably going to have a tougher time collecting.   As for the 529 plan, you know that in a real emergency you could take the money out (minus a 10% penalty and taxes on any gains) — but it won’t have the same result (value) as your disability insurance.  But if you do become disabled and can’t work, there will obviously be more financial aid available to your children for college.

I realize that I haven’t given you an answer — because this is not math;  it’s a very personal question of how much risk you want to take, and how well you sleep at night.  Sorry, but that’s the best advice I can give you.



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