Disability insurance pays benefits when you’re unable to work because you're sick or injured. Most disability policies pay a percentage - up to 70% - of what you earn when you're able to work. If you love your paycheck, disability insurance is a good way to protect the income you couldn't live without. You can buy disability insurance from an insurance company, where it may be referred to as disability income insurance.
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Do I Need Disability Insurance?
Most of my clients don't know if they need disability coverage. But did you know that your chances of being disabled for longer than three months are greater than your chances of dying prematurely? It's true - and it's mostly because modern medicine has made many previously fatal illnesses treatable. However, accidents can happen anywhere, at any time - and the same is true for illness. In fact, just over 1 in 4 of today’s 20-year-olds will be disabled before they retire. The reasons range from pregnancy to cancer, heart disease, back injuries, and other illnesses.*
Think about what might happen if you were sick or hurt and couldn't work for days, months, or even years. The average long-term disability claim lasts for 34.6 months – that’s almost 3 years!* How would you support yourself? If you have a family, how would you support them? A spouse's paycheck might help, but for many, it simply wouldn't be enough to handle all the bills. If that hits too close to home, you’re not alone. 70% of American workers live paycheck to paycheck, without the savings to help them get through a disability.** Insurance coverage can help you keep food on the table if an injury or illness keeps you from clocking in at work.
Did you know… Workers’ Compensation only covers you if your illness or injury is work-related. If you fall off a ladder while hanging Christmas lights, for example, that’s not going to be covered by Workers’ Comp.
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Disability Insurance Explained
Here's a little background information on how disability insurance works.
Every policy has a waiting period that must pass before you can receive any monthly benefits. This waiting period is called the "elimination period." Shorter elimination periods will cost more money, while longer elimination periods reduce the price of your policy.
Elimination periods range from 30 to 365 days, although 90 days is the most common. If you have group disability insurance (available through your employer, for example), you'll probably have a waiting period of about 8 days for short-term policies that pay benefits for up to six months, and 90 days for long-term policies that pay benefits up to age 65.
If your employer doesn't offer disability coverage, you can buy a policy for yourself. These are called "private" policies, as opposed to government insurance (provided through state or federal government). Private policies usually offer more comprehensive benefits than government insurance.
Most people buy policies that pay benefits up until age 65; however, you can also buy less expensive policies that pay out for 2, 5, or 10 years. Because many injuries or illnesses don't totally disable you, some policies offer a rider (policy addition) that pays you a partial benefit if you can work part time and earn some income.
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Short Term vs. Long Term Disability
Short Term Disability Explained
Let’s talk about what a short term disability is. A short term disability keeps you out of work for a couple months – say, less than half a year. Common short term disabilities include pregnancy, back problems, fractures, sprains, hernias, and mental health issues like depression or anxiety.^
Short term disability insurance is intended to cover you for about 3-6 months while you recover. They usually pay a higher percentage of your pre-disability income (up to 70%) because the duration is short, relatively speaking. They also start paying out quickly, with a waiting period often around 14-21 days.
Your need for a short term policy depends on how much money you have saved up. If you’re like most Americans, you probably can’t pay for an unexpected expense like a hospital bill if you’re out of work. In fact, 3 out of 10 Americans don’t have a spare $400 without using a credit card or borrowing from friends or family.^ If that’s you, consider what being out of work due to a disability could cost. A lot more than $400, right? So if coming up with that amount is hard, what would you do if you got sick or hurt? A disability police provides peace of mind so you never have to worry about the answer to that question.
➡️ Need to talk to someone about the best short term disability insurance? It all depends on your personal situation – job, finances, dependents, etc. Give me a call and I’ll walk you through everything.Schedule a Call
Long Term Disability Explained
Now, let’s talk about what a long term disability is. A long term disability keeps you out of work for years, not months. Common long term disabilities include medical conditions like cancer, heart attack, stroke, musculoskeletal disorders, mental health issues, and severe fractures, sprains, or strains.
A long term disability policy will usually pay you 40-70% of your pre-disability income, for a period you select when you buy your policy. You can buy policies that provide 5, 10, 15, and 20 years’ worth of income. These policies have longer waiting periods before they start to pay – often around 90 days. This is because the insurance company needs to have conformation that your disability really will last for years. Your doctor will need to provide proof that your disability will be long-term before you file your disability claim.
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Tips for Buying Disability Insurance
There are many types of private disability insurance. If you're interested in a policy, it's a good idea to talk to an agent to find out which type is right for you. For example, would it be more affordable to buy a disability policy or to buy a life insurance policy with a disability rider? I can help you make an educated decision based on your financial needs.
- Do you need short term disability coverage, long term disability coverage, or both? It depends how much you have in your emergency fund. If you could ride out a short term disability, let’s focus on your long term coverage needs.
- How long do you want your policy to pay out if you have a disability? Benefit period options range from 3 months to until your retirement. Take another look at your finances and that emergency fund: how long could it tide you over? This will affect how soon and how long you want your policy to pay out.
- What are your monthly expenses? How much of your salary do these expenses consist of? This will help you figure out the percentage of your pre-disability income you need your policy to pay.
- Estimate how big an impact medical bills would play in your finances. If you got sick or hurt and owed your health insurance policy’s out-of-pocket maximum for your treatment, make sure account for this in your projected budget for your disability.
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*Council for Disability Awareness, “Overview,” accessed 4/11/23
**Blog.MassMutual.com, “Uncomfortable truths about disability that may surprise you,” accessed 4/11/23
^Council for Disability Awareness, “Disability Statistics,” accessed 4/11/23