Many people don’t think about injuries and illnesses affecting their lives, but these disruptions can happen to anyone, young or old. You may find yourself unable to work for long periods of time, ultimately compromising your ability to earn a steady income. It can be extremely difficult to manage finances without money coming in on a regular basis, especially while having to contend with personal health issues.
Fortunately, disability insurance provides a long-term solution for those who seek extended financial coverage while dealing with illness, accidents, and other health-related struggles. But is disability insurance worth it? If so, what do prospective policyowners need to know before getting started? Here, we answer all common questions to give you deeper insight.
What Is Disability Insurance?
Disability insurance is a type of insurance that covers a portion of your income if you become sick or injured. It helps you pay for everyday expenses, such as rent or mortgage, utilities, and groceries.
The most valuable assets in your life aren’t always materialistic—it’s not your car, house, or even stocks. It’s your health and your ability to earn money independently. Income loss brings inevitable stress and worry, especially when you have bills to pay. With disability insurance, however, you can rest assured that you’ll still receive a portion of your income—and get the financial relief that you need.
What Isn’t Covered By Disability Insurance?
Although having disability insurance coverage is helpful, it’s important to know a few things before enrolling. For instance, it does not necessarily cover all medical bills or other long-term costs. For example, pregnancy is a condition that’s not covered by long-term policies unless you have extended complications that require bed rest and time off from work.
With that said, there are different types of disability insurance that might help you with pregnancy, as well as other health issues. Further down, we discuss why this type of insurance is so important—and what kind you should enroll in to meet your unique needs.
Why Is Disability Insurance Important?
You may wonder, “Why is disability insurance important? Do I need disability insurance?”
Even the healthiest people can run into life events that stop them from working. According to the Social Security Administration (SSA), 25% of today’s 20-year-olds become disabled for 90+ days before they reach the age of 67. Furthermore, 68% of our country’s non-government workers have no disability insurance to help alleviate their financial burdens in the event of an accident or ailment. That means a large number of people are forced to dig into their emergency funds or find other sources of income.
If you ever find yourself struggling with either long-term and short-term health issues, such as a heart attack or even cancer, disability insurance helps ensure that you’re always financially protected. With assurance that some of your income will be covered, you can prioritize healing and building back your health.
Who Needs Disability Insurance?
If you try to determine who needs disability insurance, the answer is easy: every adult. Regardless of age, health, or occupation, disability insurance can make a significant impact on your life, should the unexpected happen. Although some people are fortunate to have emergency funds for extended periods of unemployment or other life emergencies, that money can quickly run out—and you may no longer be able to support yourself and your loved ones.
The American Public Health Association reported that 67% of US bankruptcies and over 50% of mortgage foreclosures happen due to an illness or injury of the worker. What’s more, 90% of long-term disabilities happen due to an illness rather than external accidents. With these kinds of statistics, it’s smart to take steps to protect yourself; disability insurance can provide you with much needed financial safety.
How Much Does Disability Insurance Cost?
There are two types of disability insurance: short-term and long-term. But how much does short-term disability cost? What about long-term coverage? Both monthly premiums can range anywhere from 1% to 3% of your annual income. So, if your income is $50,000, you would expect to pay a maximum of $125. There are also other factors that can directly impact your monthly premium:
- Type of coverage. Are you opting for long-term or short-term insurance?
- Your job. Are you an office employee who doesn’t face risks, or are you required to frequently put your safety on the line?
- Your current state of health. Do you drink or smoke, or engage in other activities that might impact your physical wellbeing?
What Type of Disability Insurance Should I Get?
Regardless of the injury or health issue, both short-term and long-term disability insurance will help cover a part of your salary. However, it’s important to note that each insurance company has different definitions of “disabled,” so you must assess whether your circumstances would fit the insurer’s criteria before you make any decision.
Here are brief explanations for each type of insurance:
Long-term disability insurance
Long-term disability insurance provides coverage for an extended period of time, typically lasting a few years up to retirement. It is tax-free and covers 40-60% of your salary for 5+ years, depending on the duration of your disability. Long-term disability insurance costs 1-3% of your annual income, and is slightly cheaper than short-term disability insurance. Before you start receiving your money, you must allow your waiting period to pass, which is also referred to as your elimination period. You can then expect your first payout within 3 to 6 months—so if you rely heavily on your current stream of income and don’t have access to any savings, long-term insurance might be your ideal solution.
Short-term disability insurance
Whereas long-term disability insurance covers the policy owner for several years, short-term policies may only last 3 to 6 months. It pays 60-70% of your base salary until you recover from your injury or illness. You only receive pay for the duration of your coverage, though every policy differs. Depending on your circumstances, it may pay for additional services that prepare you to return to the workforce, such as a career development or training session. The waiting period is also shorter—possibly only 2 weeks—before you’re able to receive your benefits.
Short-term is more expensive than long-term—and it’s a good idea to choose short-term insurance if your employer offers it to you at no or very low cost.
Disability insurance alternatives
Aside from long-term and short-term disability insurance, there are other alternatives that can help you with your financial situation:
- Social security disability insurance (SSDI): This is a free, federal program that provides disabled workers with monthly payments. However, very few people qualify, and the benefits are usually not enough to cover all living expenses.
- State disability insurance: This coverage is only available in California, New York, Hawaii, New Jersey, Rhode Island, and Puerto Rico. It works similarly to short-term disability insurance, but is state-mandated, and has less benefits.
- Workers’ compensation: If a person becomes injured during work, workers’ compensation provides financial assistance to help with their recovery, such as substitute income. This also helps protect businesses from potential lawsuits when accidents happen.
- Self-insurance: Self-insured individuals rely solely on their own savings to cover emergencies. Despite its name, it is not an official form of insurance, and may not be suitable for everyone.
- Selling your life insurance: This option only applies if you’re currently a life insurance policy owner. You may be at a stage in your life where you no longer want this coverage, or are unable to pay for its premiums. Selling your life insurance can help you get money for an unwanted policy.
How Do I Get Disability Insurance?
If you want to find out how to get disability insurance, your first step should be to contact your employer and see if they offer it as part of their employee benefit solutions. While some employers don’t pay for your coverage, they may offer it as a voluntary benefit.
If disability insurance is not available through your employer, connect with an insurance professional or broker who can walk through options with you, and guide you in buying a plan.
Is Disability Insurance Worth It?
If you’re still wondering, “Is disability insurance worth it,” the answer is yes—it will help you pay your bills and alleviate financial hardship when you’re injured or too ill to work. At least a quarter of adults will experience some form of disability in their lifetime, and can affect anyone regardless of their background.
If you’re looking for alternative ways to cover life expenses, find out how much your life insurance might be worth—then consider cashing out your policy for a life settlement. The process for a life settlement is relatively easy. Coventry can help by providing you with the guidance and resources you need to make a decision.
Learn more about selling your life insurance at Coventry Direct.