Have you ever had friends or colleagues affected by health problems that left them unable to work for months (or even years)? it’s hard to see others struggling to make ends meet when life gets tough. and it’s even harder to imagine if it were you and your family.
What would a loss of income mean to you? It would probably be stressful, frustrating, and even a little scary. The good news is that you can patch this hole in your financial safety net with long-term disability insurance.
Reading: Who should have disability insurance
what is disability insurance?
In general, disability insurance covers part of your earnings if something happens to you (like an illness or injury) and you can’t work.
The younger and healthier you are, the easier it is to qualify for a policy. But as you get older, your premiums go up. And if your health takes a turn for the worse, you may find it difficult to qualify for an affordable policy.
But disability insurance doesn’t just cover freak accidents. most claims are for things you may not know are considered disabilities, such as physical injuries, a heart attack, or cancer. these things can happen to anyone in any workplace.
why you need disability insurance
Do you think none of this will happen to you? think again. The Social Security Administration (SSA) reports that one in four of today’s 20-year-olds will be disabled for 90 days or more before they turn 67, and 68% of non-government workers are uninsured of disability. (1) ouch!
Having a long-term plan, beyond a 3-6 month emergency fund, is important not only for you, but also for the people who depend on your income. How much better would you feel if you knew that money was still coming in while you were recovering?
what are the types of disability insurance?
Right now, there are two types of disability insurance you’ll see a lot of: short-term and long-term. They basically do the same thing in the way that they replace part of your monthly salary. but we’ll talk more about that later.
Although they do the same thing, short-term and long-term disability insurance have some differences you should be aware of. here’s how they compare:
How much does it cover?
around 60-70% of your salary
40-60% of your salary (but we recommend finding a policy that covers 60-70%)
how long does it last?
usually 3 to 6 months, but that depends on the policy
five years or more if your disability continues
how much does it cost?
1-3% of your annual income (but tends to be more expensive than long-term coverage)
1-3% percent of your annual income
How soon would you receive your first payment?
about two weeks after the doctor confirms that you have a disability
normally between 3 and 6 months
why would you get it?
only if your employer offers it at no cost to you
if you depend on your income and don’t have savings to replace it in the long run
long-term disability insurance
We believe long-term disability insurance is the only plan worth buying. But how long does long-term coverage last? anything lasting more than two years and up to retirement age is considered a long-term policy (but you could extend it into retirement if you wanted). And whether you’re working at a desk or on a construction site, you’ll want to have something in place until you’re 65.
We recommend getting as much coverage as possible: around 60-70% of your income. if you take out your own policy, it will stay with you every time you change jobs. but it is cheaper if you can buy it through your employer. (filing a claim will require proof of employment income to replace). talk to your human resources department about how to set it up.
When you look at the numbers, long-term disability insurance really is your best option. We recommend getting coverage for at least 5 years or more, to cover long-term loss of income that your 3-6 month emergency fund won’t cover.
The only downside to long-term coverage is the elimination period (how long you have to wait before the first checkup comes after the doctor confirms you’re disabled). Because long-term disability is designed to start after short-term disability, there is usually a phase-out period of several months. the average time it takes to process a long-term claim is about 90 days.
short-term disability insurance
Short-term disability insurance is exactly that: short. payments only last from a few months to a year. the elimination period is typically around two weeks, so you may get your payment faster than long-term coverage. But when it comes to cost, short-term premiums are about the same (but generally more expensive) than long-term premiums.
Basically, unless your employer offers you short-term coverage at no charge, don’t get it. You can build your own short-term disability coverage by saving 3-6 months of expenses in an emergency fund. If you get sick or injured and have to be off work for a few months, your savings can fill in the gaps until you get back on your feet.
how much does disability insurance cost?
Disability insurance costs (also known as premiums) for both short-term and long-term coverage can range from 1% to 3% of your annual income. So if you make $50,000 a year, that’s $60 to $125 a month. But you’ll pay less if you get a long-term policy with a longer elimination period. if you can, get a “non-cancellable insurance policy” which, you guessed it, cannot be canceled by the insurance company even if your health changes.
Other things that affect how much you pay in premiums each month are your age, whether you smoke, what you do for a living, and how much money you make. (because if you earn a lot, it will cost you more to protect those earnings).
And since insurance companies aren’t known for making things easy, another thing that affects the cost of disability insurance is your definition of disability. If you want a policy that specifically covers your work as a chimney sweep, your premium would cost more compared to a policy that covers you in an office job.
Who needs disability insurance?
everyone! You must have long-term disability insurance regardless of what job you have, whether you’re a high-rise window cleaner or a car salesman. The reality is that you’re more likely to become disabled while working with heavy equipment or machinery than if you’re sitting in front of a computer all day, but don’t let this stop you from protecting your income for the long term.
By the way, if you have a risky job as a firefighter, police officer, or shark handler, you’ll see higher disability insurance premiums compared to a telemarketer.
Fortunately, disability insurance is a common benefit offered by employers if you have a high-risk job. just remember: disability insurance is not there to make you rich! it’s there to pay the bills and put food on the table if something happens to you.
what does disability insurance not cover?
Disability insurance is only designed to replace a portion of your income; it doesn’t cover additional expenses like your medical bills and long-term care costs.
While long-term policies generally don’t cover pregnancy, complications that extend beyond the pregnancy (such as being ordered to stay home by a doctor after a C-section) may qualify for benefits, but only if you had a long-term policy in place before you became pregnant.
Short-term policies cover birth as a disability, but you may have to wait six to eight weeks for each check.
how to get disability insurance
You can get disability insurance by finding out if your employer offers a long-term disability insurance plan. if not, you should contact an insurance professional. dave recommends zander insurance. They will walk you through the process and help you get the right amount of disability insurance for your specific situation.
Dealing with a disability can be scary enough without the added worry of how you’ll pay the bills. That’s why protecting your paycheck with the right kind of disability insurance is a critical part of keeping your family and your future safe. To start finding the best disability insurance option for you, check out our new Coverage Verification Tool today.