Understanding Payment Protection Insurance

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Disability | Life

Could you make it on standard disability benefits?
How much would you receive if you became disabled? Here’s a worksheet that will help you determine if you have enough insurance to cover your loan payments if you became disabled and were unable to work.

List your monthly take-home income (without overtime).	$
List the percentage of income you would receive if you became disabled. (Most employee disability plans provide benefits equal to 60 percent of take-home pay. If you do not have disability coverage through work, put zero here.)	%
Monthly disability income:	$

Calculate your monthly expenses.

Mortgage or rent payment	$
Car payment	$
Car insurance	$
Utilities (electricity, gas, water, etc.)	$
Credit card payment(s) (use minimum payment)	$
Food and clothing	$
Other loan payments	$
Other monthly expenses	$
Minimum monthly expenses:	$

Compare the income you would receive if you became disabled with your expenses.

Money remaining for other expenses:

If your expenses exceed your disability payment, you'll need to draw on backup savings to meet ongoing expenses.

Total expenses covered by disability insurance:

Monthly expenses such as car payments, credit card payments and other loan payments are expenses credit disability insurance covers. Credit disability insurance is designed to pay your loan payments (up to the contract limit) if you become ill or disabled and are unable to work.

Disability Insurance
If you have disability coverage through your employer, make sure you know:

The waiting period. According to employee benefits specialists, disability plans require an average waiting period of 60 days before you receive benefits.
Short-term benefits. Employee benefits specialists say that the most common employee plan benefit amount is 60 percent of take-home pay for up to six months. Some companies offer long-term disability benefits as well. Check with your employer for details.
Social Security rules and regulations. While Social Security does provide long-term disability benefits, those benefits are capped at a portion of normal take-home pay. More than 25 percent of initial requests for Social Security disability are denied.*

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Disability | Life

Life Insurance
It’s also important to have life insurance to financially protect your home and family if you couldn’t be there for them. Enter the amount that would allow your family to:

Payoff your debts	$
Pay funeral and estate costs	$
Replace your income	$
Provide for future needs of your survivors^†	$
Total:	$

Compare the total to the amount of life insurance coverage you currently have. If there’s a gap, you may wish to consider adding additional insurance, such as Payment Protection coverage.

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Disability | Life

^†It costs between $125,000 to $225,000 to raise a child to age 18, according to a year 2000 study by the U.S. Department of Agriculture. And, the college years will cost another $150,000.

*Overview of Entitlement Programs, 2000 Green Book, Ways and Means Committee, Washington, D.C.

By protecting your loan, you're also helping to protect your credit rating.

Protect more than just your loan.

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Last updated: Monday, October 18, 2004 12:36 PM