Continuing with open enrollment month for your workplace benefits, let’s talk about disability insurance. Many people think about life insurance, especially if they have kids, but not everyone thinks about disability insurance, even though your chances of becoming disabled are greater than dying. According to a report published by the Social Security Administration in August 2018, you have between a 27 and 28% chance of becoming disabled before your “retirement age” which is typically age 65. The report lists your probability of death for the same timeframe as only 11 to 18%.
Therefore, if you are planning for what might happen to the people you support if you die, you should also plan for what might happen if you are disabled. Not only will you need to take care of those you support, but also how you will pay for things when your income stops.
I believe most people don’t think about the risk because they view it as something catastrophic. “Oh, I won’t get hit by a bus.” However, becoming temporarily disabled may occur because of a surgery, or some other illness. You may have to miss work for a period of a few months while you recover from a minor accident. Not everyone has enough vacation or leave pay in situations like these. I wrote about having emergency savings for this type of thing (having to miss work, meaning, missed paychecks) but you may not know how long you will be disabled and out of work.
Therefore, I encourage you to consider disability insurance. In general, disability insurance pays some of your lost income if you are disabled from an illness or injury and can’t work. There are several types of disability insurance, but two MAIN types: Short-term and Long-term.
| Short-Term | Long-Term | |
| What does it typically cover? | 60-70% of your income | 40-70% of your income |
| What is the period of coverage? | 3-6 months | Depends on the policy, could be anywhere from 3 months to forever |
| What is the typical waiting period? When can you start to collect after being declared disabled | 2 weeks | 3-6 months |
| What does it cost? | Can be expensive. Honestly, you are better off building up your emergency savings, so that you can get yourself through a 3-6-month period before long-term disability kicks in. | Depends. There are a lot of different factors to consider. |
| What else? | Might cover pregnancy. I had a policy once that paid out when I was on maternity leave. |
Some of you may be thinking, oh, I can just collect Social Security Disability if I become disabled. Um, good luck with that. On average, the Social Security Administration turns down around half of the people that apply for this type of coverage. There is a long list of things that they review to see if you qualify.
You also might be thinking that you could get workman’s compensation if you get ill or are injured. This only applies if you become sick or injured at WORK.
Many employers offer some sort of disability insurance as part of their workplace benefits. You can sign up for this, and it may be cheaper than buying it on your own. Five states even require employers to provide short-term disability benefits: California, Hawaii, New Jersey, New York, and Rhode Island.
You can also buy your own policy. It will be most expensive if you buy it directly from an insurance broker or company, but you may be able to qualify for some sort of discount through a professional association. For example, I have a policy through the American Institute of CPAs that is much less expensive than if I had to buy it on my own.
One last thing to consider about disability insurance. Be sure you know what you are paying for. There is a cost difference, as well as a “what you’re going to get” difference between “any occupation” and “own occupation.” If you have a policy that pays for your “own occupation,” that means that if you become disabled and can’t do your existing job, then you still qualify for insurance benefits. The other alternative is “any occupation.” If you become disabled and were a doctor, but can still work as a janitor, then you would not qualify for insurance benefits because you can still work at a job.
As always, if you have questions, please do not hesitate to ask me!
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