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For a sense of how a disability can impact a family's finances, consider Don and Pat Smith. Don and Pat live in a Midwestern city and are the parents of a nine-year-old boy. Don, 35, earns $35,000 a year selling cars. His monthly take-home pay is $2,129. After staying home several years to care for their daughter, Pat is now a part-time receptionist in a local dental office. She brings home $560 a month.

Don and Pat are able to support their lifestyle until Don becomes ill due to Parkinson's disease and can no longer work. Suddenly, there is a dramatic reduction in the Smith's income. Don isn't eligible for Social Security disability. (To be eligible, Don would have to demonstrate that he is unable to engage in any gainful work that exists in the national economy, regardless of whether such a job exists in the area in which he and Pat live.) Don has no prior military or civil service that might qualify him for other government disability programs. He does not qualify for workers' compensation benefits because his illness is not job-related.

The specifics of what happens next depend greatly on whether Don's employer offers group disability benefits, whether these benefits are short-term (STD) or long-term (LTD), whether the policy includes a cost-of-living adjustment, and how the group policy defines disability.

If Don's employer does provide group LTD, Don would be entitled to benefits under his employer's policy -- probably up to 60 percent of his gross salary, or $1,750 a month. Of this amount, he would have to pay $219 in federal income taxes and $109 in state income taxes, since his group premiums were paid with pretax dollars. To continue his family's group medical policy, he will have to increase his premiums to include the portion previously paid by his employer. Under this scenario, the Smith's monthly income (including Pat's current salary) would drop almost 30 percent. If Don's employer didn't provide any disability benefits, the Smith's would have had no choice but to almost immediately begin spending down whatever savings they might have accumulated up to that point in their lives.

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