Disability insurance protects you if you become ill or have an accident by paying you a portion of your salary. Here are a few things to consider when deciding whether you need disability insurance.
What Are The Odds?
The Social Security Administration states that 1-in-5 Americans live with disabilities and 1-in-10 live with severe disabilities.
If you’re young and don’t think this could happen to you, think again. Today’s twenty year olds have more than a 1-in-4 chance of disability before retirement age. No one can predict disability and it can happen to anyone at any time.
Average Claim Length
According to the Council of Disability Awareness, the average long-term disability claim is about three years. That’s a long time to support yourself, and others, if you’re the principal bread earner.
Even if you’re a two income family, and experience a short-term disability, you could drain your savings, your Roth IRA, or need a loan on your 401k just to get by.
In California, workers’ compensation insurance covers work-related injury or illness, but unfortunately most long-term disabilities aren’t work-related. According to the National Safety Council, only 27% of long-term disabilities pertain to work.
California State Disability Insurance
Disability Insurance pays a weekly benefit for up to 52 weeks to qualified applicants when an injury or illness is NOT caused by or related to work. If you elected coverage since you’re self-employed, benefits are paid for a maximum of 39 weeks.
Benefits are usually between 60-70% of the wages you earned before your disability, but what happens after these benefits end?
Social Security does provide benefits to qualified individuals, but only the most severely impaired qualify. The monthly disability benefit of $1,165 is barely above poverty level.
Your employer may offer a short-term as part of your benefits package and the option to buy a long-term policy, but a few words of caution. These policies may look attractive, but they seldom leave room for flexibility. Plus, if you leave the company or you’re laid off, you lose your coverage.
Credit Card Insurance
Some credit card issuers include disability coverage in their insurance offerings. It may seem a great deal since you pay a very low monthly fee, but you receive very little benefit. Typically, it only covers the minimum payment due on your card (2% to 3% of the balance) for a specific time.
A personal policy stays with you as long as you pay your premiums and policy benefits can range from 40 to 65% of your income.
Two broad categories of disability coverage exist: “own occupation” and “any occupation.” With an “own occupation” policy, you’re covered when you are not fit enough to carry out the main duties of your job.
An “any occupation” policy covers you if you are too disabled to do any work. Since “any occupation” policies provide much broader coverage, they’re also more expensive.
Buy a non-cancellable AND guaranteed renewable policy. This ensures continual coverage and stable premiums. An inflation rider costs a bit more, but it also balances your benefit amount against the cost of living so it’s worthwhile.
Anyone can become disabled at any time. Don’t leave your future to chance. Discuss your needs with your independent insurance agent. You can buy a disability policy to suit your budget with their guidance.
They can adjust key policy variables, explain limits and exclusions, and tailor a policy so it provides good coverage at a reasonable cost.