If you are in your 20s or early 30s, chances are you haven’t given much thought to what would happen if you suddenly couldn’t work due to illness or injury. If you’re like most people, you probably wouldn’t be able to continue making your mortgage or rent payments, buying groceries and paying your other bills for very long.
Far too many people would be in serious financial peril if they were suddenly unable to work. According to a 2016 survey from the Federal Reserve Board, 47 percent of American consumers report that, in an emergency, they would not be able to come up with $400 without borrowing or selling something.
You might be thinking: “Yeah, but the chances of that happening to me are slim, right?” Think again. According to the Social Security Administration, one in four of today’s 20-year-olds will become disabled before retirement age. Those odds are reason enough to take action, yet a 2012 survey from LearnVest found that only 35 percent of consumers between the ages of 21 and 40 have disability insurance, either because they believe it’s not worth the cost or believe they work in a low-risk job.
It may be true that office workers are less prone to musculoskeletal injuries than, say, someone who moves furniture for a living. But there are many injuries and illnesses that don’t care what you do for a living, like heart disease or cancer — the second and third most common cause of disability claims.
Most common disability insurance claims:
and other musculoskeletal problems
Disability happens to people of all ages and occupations, so read on to learn more about disability insurance and how you can get protection for a relatively small cost.
You purchase auto insurance to protect your car and homeowners insurance to protect your house but the ability to earn a living is the largest asset for most people. Disability insurance helps protects your paycheck. It allows people who are unable to work for an extended period to continue receiving an income and help make ends meet until they can return to work or start receiving retirement benefits.
What does disability insurance cover?
You are typically eligible to receive disability benefits if an illness or injury leaves you unable to perform the basic tasks required by your occupation.
Many people mistakenly believe that their health insurance will pay for all or some of their long-term care if they become disabled. In reality, health insurance generally provides very limited long-term care benefits. Disability insurance doesn’t cover medical care or long-term care services. It is intended to replace some or all of your income when an illness or injury prevents you from working.
If losing your regular income would make life difficult for you and your family, then disability insurance is right for you. Consider these statistics:
Disability insurance isn’t just for people collecting a paycheck. Even stay-at-home parents need protection. They may not receive a paycheck, but consider the value provided by running a household or caring for children. Disability insurance can help cover the cost of hiring outside help to do those tasks when a stay-at-home parent is sidelined.
If your job involves typing or using your hands, carpal tunnel syndrome could derail your ability to do your job. Disability insurance would prove a safety net for your and your family while you focus on getting better.
Disability insurance comes in two “lengths:” short-term and long-term.
Many employers offer short-term disability insurance. (Five states also have state mandated disability plans: California, Hawaii, New Jersey, New York and Rhode Island.) Some employers pay the entire premium on behalf of their employees while others make a contribution and the employee pays the remaining premium.
Short-term disability insurance is meant to provide benefits for a relatively short period if you become sick or injured and cannot work. Here are a few key points to keep in mind about short-term coverage:
Short-term disability insurance can help bridge the gap between sick leave and returning to work. But what happens when the disability lasts beyond the time your short-term coverage ends? How do you fill the gap in your income? That’s where long-term disability insurance comes in.
As the name says, long-term disability insurance helps protect your paycheck for a longer period of time. Depending on your policy, it may cover you for two years, five years or to full retirement age (67 years old). The length of time you receive benefits may also depend on whether accident or illness caused your disability.
Payments begin following a waiting period that is chosen when you purchase the policy. This is the period between the time you become disabled and the time your payments begin. Ninety days is a common waiting period, but they can range from a week to one or two years. Generally, the longer the waiting period, the lower your premium.
Long-term disability insurance may be right for you if you want the option of choosing from more riders, allowing you more flexibility to customize coverage to your needs. It’s also a good choice for people who want portable protection that they can carry between employers or to age 67.
To figure out how much disability insurance you need, start by asking yourself a few questions:
Pro Tip: We typically recommend purchasing enough disability coverage to replace at least 50 percent of your income, but a better rule is to cover as much of your pay as you can afford.
Everyone’s situation is different, so try this handy coverage calculator to help you determine how much disability coverage is right for you based on your monthly income, current employer-provided coverage and other expenses.
During the application process, your insurer will ask questions to develop a “risk profile.” This profile is based on your health history, age, driving record and any activities you participate in that could be hazardous.
This guide from America’s Health Insurance Plan, a national trade association representing the health insurance industry, lists some other information you’ll be asked to provide when applying for disability coverage:
After creating your risk profile, the company determines whether they can provide coverage and how much your premium will be.
Most people are surprised at how affordable disability insurance actually is. Many factors influence the premium, including:
Because there are so many factors that influence the rates for disability insurance policies, there is no simple answer to the question of how much disability insurance costs. However, you can see for yourself how much your plan might cost by getting an instant quote.
Get a personalized quote to see how much it could cost for YOU.
No strings attached.
If you have disability insurance coverage through your job, consider yourself fortunate. You’re one step ahead of most, as less than half of consumers have employer-provided coverage. However, be aware of the pros and cons of employer provided coverage.
Absolutely. In fact, we strongly recommend purchasing an individual policy. Disability insurance is an especially wise move for people who are self-employed because losing the ability to work can be disastrous — not just for your business, but for your family as well.
Consider this scenario from 360 Degrees of Financial Literacy :
The sorts of injuries and illnesses covered by disability insurance largely depend on your policy. Most plans include a variety of injuries and illnesses that affect how you work — things like carpal tunnel syndrome or a back injury from a car accident.
Your policy may also refer to “own occupation” or “any occupation.” Definitions of these terms vary but in general:
If your policy provides coverage during periods of illness or injury that prohibit you from doing your own occupation, you do not have to be fully disabled. You just need to be unable to do your current job.
Many people who qualify for individual long-term disability insurance benefits are denied Social Security disability benefits. Not only is the definition of disability stricter and the waiting period longer for Social Security Disability Insurance (SSDI) but, for most people, SSDI benefits are not enough to maintain their lifestyle. Research shows that relying on SSDI benefits alone leaves many families near or below the poverty line.
You are eligible to receive disability benefits when a covered illness or injury leaves you unable to perform the basic tasks that your occupation requires. To file a claim, give your insurer a call, and they will send you forms to complete. Fill them out and send them back, along with verification from your doctor.
The timing of your benefits depends on the length of your policy’s waiting period. Usually, you can choose a 30-, 60-, 90- or 180-day waiting period.
We generally recommend 90 days for a good balance between cost and coverage, especially if your long-term policy is supplementing a short-term policy provided by your employer. Short-term benefits typically last between three and six months.
How long you’ll receive benefits depends on the “benefit period” as outlined in your policy. The benefit period is the longest amount of time you are eligible to receive benefits. During this period, you have to remain disabled to continue receiving benefits.
Your benefit period may be two years, five years, or could cover you until age 67. A two-year benefit period is enough to cover most disabilities, especially if you are young. It’s also the least expensive option.
A five-year benefit period will protect you during a disability that requires a longer recovery period and gives you time to retrain for a new occupation if needed. For example, if your job has a physical component that your disability does not allow you to complete, a five-year benefit could be helpful while you learn new skills or go back to school.
Finally, a benefit of up to age 67 could protect you from just about anything. You could continue receiving benefits until you begin to withdraw Social Security and retirement benefits.
Anyone who depends on a paycheck or their ability to work should consider disability insurance. Accidents happen, and serious illnesses do, too. Disability insurance can help provide a crucial financial safety net when your paycheck stops.