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Insuring your income
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October 22, 1997: 12:28 p.m. ET
Protection against long-term illness is among benefit options for employees
From Correspondent John Defterios
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NEW YORK (CNNfn) - Many workers shelter pretax money in individual retirement accounts or tax deferred annuities. Most people don't know they can also shield some of their income in dependent-care spending accounts. These accounts, while providing financial protection against long-term illnesses, can also be used for a host of family expenses.
For most people, their earning potential is their greatest financial asset. So what happens if a back injury keeps you out of work for six months? Or complications from a pregnancy require you to stay home? Your income will stop unless you have long-term disability insurance.
"It's very important to insure your income because if you become disabled on or off the job, you may not be able to have an income coming in for one month, three months, a year, and all of a sudden your bills are not being paid," said Melissa Levine, a certified financial planner.
Your chances of suffering a disability for three months or longer during your working life are far greater than your chances of dying -- nearly five times greater at age 35, three times greater at age 45, and almost twice greater at age 55. Yet, far more people purchase life insurance.
Another benefit option that most companies offer but few people take advantage of are dependent-care spending accounts, which allow you to set aside pre-tax money for specific expenses.
"If you're paying for child care today, or if you're paying for custodial care of a dependent parent, you're probably doing that with money you've already paid income taxes on," said Joseph Martingale, employee benefits consultant for Towers Perrin. "Dependent-care spending accounts allow employees to take advantage of the tax laws in a way that would permit you to pay for that care before being taxed on the money you've used."
You can put up to $5,000 a year into a dependent-care spending account, but you must use it during the year, or you lose it.
Many families could benefit from using these spending accounts. But for those making less that $25,000 a year, there are tax credits available to help save on dependent-care expenses.
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