Catastrophe Planning: Disability & Life Insurance

BOSTON (CBS) - According to the Social Security Administration, 1 in 4 of today's 20-year-olds will become disabled during their working career.

Your ability to earn an income is important for you and your dependents. Disability insurance covers the loss of that income when you are out of work.

Your employer may offer it as a paid benefit or offer it to you to purchase. Short term disability insurance can kick in within 30 days. Long term disability insurance may take 90 days to kick in. And usually only pays about 60% of your salary.

If you have accumulated sick time or have a couple of months of living expenses set aside in an emergency fund a long-term disability policy is all you need.

If you pay into Social Security you also have a disability policy there, but the requirements are strict as to who receives disability benefits from the Social Security Administration.

If you work for the state, a city or town you probably have disability insurance as a benefit.

Life insurance is used to cover the loss of your income for your dependents if you should die. A young couple with children needs a lot of life insurance.

You need to have enough insurance to provide a future income stream for your family and if you want to send the kids to college you'll need college money and if you want the house paid off so your spouse and kids can stay there you'll need mortgage money also.

Add that all up quickly and you could be looking at a million-dollar insurance policy. The cheapest way to go is to purchase term insurance. All you are buying here is life insurance. No fancy investments or savings plan, just insurance and for most individuals insurance is all you need.

Check out the Internet for help with calculating just how much insurance is enough insurance.  Bankrate.com has a good calculator as well as Kiplinger's Personal Finance.

Insurance policies should be kept in an accessible file so they can be easily retrieved when needed.