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Do you need long-term disability insurance?

A long illness could derail even the best retirement plan.

You may be a diligent saver, one who maxes out your 401(k) and IRA, but you probably haven't considered protecting your ability to earn money.

Your earning power is more valuable than your savings or your stock portfolio. Not planning to protect it, even for a couple of years, would seriously alter your plans for the future.

One in three employees age 25 to 65 will be out of work for three months or more because of an injury or illness, according to the Society of Actuaries. Accidents are not the main cause. About 90 percent of disability claims are for common illnesses and health conditions, such as back problems and cancer, according to a report by the Consumer Federation of America.

Advisors quoted in Fortune recommend looking at your cash flow and your employment income and thinking about how well you would do if you couldn't work.
Short-term disability insurance (sick leave) covers earnings for only a few months. Long-term disability replaces income until you reach age 65.

About one-third of American workers have access to long-term disability insurance through their employers. The coverage typically provides up to 60 percent of base salary and most have a benefit maximum. For a high-income earner, it wouldn't be enough.

A personal policy replaces 70 percent of income and payouts are tax-free.

When considering a policy, look for "own occupation" coverage. It covers you if you can't perform your current job, as opposed to policies that don't pay if you're able to work in any job at all.

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