Disability insurance can help protect your income
when you are injured or sick
What is disability insurance and why do you need it?
You may think your most valuable asset is your home, but in reality it is your income (or ability to maintain enough cash flow to sustain your monthly living needs). Disability insurance protects you in case of an injury or illness by paying you a percentage of your income when disabled.
The chance of missing months of work when you are young and seemingly healthy may seem remote, but according to the Social Security Administration, more than one in four 20 year olds will experience a disability for 90 days or more by the time they reach age 67. None of us ever think it will happen to me but just think about anyone you know who has had cancer, heart attacks, diabetes or other significant injuries, unfortunately it does happen and protecting your income helps reduce the stress of a tragic event.
Short Term vs Long Term
Short-term disability insurance…
- typically replaces 60-70% of a person’s base salary
- pays out for a few months to one year depending on the policy
- may have a short “wait” period after you become disabled before the policy benefits are paid
Long-term disability insurance…
- typically replaces 40-60% of a person’s base salary
- benefits end when the disability ends, if the disability continues, benefits end after a certain number of years or at retirement age
- common wait period is 90 days after disability before benefits are paid
Buying your own disability policy
Many employers offer both short-term and long-term disability insurance, but in many cases they have reduced benefit coverages compared to what you could get on your own. It may be a good idea to buy a supplemental policy to cover the difference of what you might need versus what your employer plan may provide.
If you’re employer doesn’t provide disability insurance (or you’re self-employed) it is a good idea to buy your own policy to protect yourself and family.
Buying your own policy allows you to:
- customize the benefits and features of your policy to meet your individual needs
- choose the insurance carrier with the best pricing and benefits
- keep the coverage when you change jobs as employer coverage ends when your employment ends
- collect benefits tax-free if you become disabled. If the employer pays for the coverage, you must pay taxes on the benefits!