Is Disability Insurance Worth It

What Is Disability Insurance?

Disability insurance is also known as disability income insurance. That’s because it pays part of your income if you are injured, sick, or unable to work. . Disability insurance covers many severe illnesses and injuries. To help you decide if disability insurance is something you should purchase, here’s a look at some of the events it can help you through:

Pregnancy CancerMental health challengesHerniasBroken bonesMusculoskeletal disorders

The exact terms of your contract vary depending on the policy you select, but many policies allow you to protect up to 70% of your monthly income. This means if you normally earn $2,400 a month, your disability insurance could provide up to $1,680 a month in payment. You can use this money any way you’d like.

Pros and Cons of Disability Insurance

Pros Explained

Protects your income: Disability insurance protects your income so you can continue to pay your bills if you become injured or sick and unable to work. Offers peace of mind: Knowing you will be able to pay the bills while you are out of work can minimize the stress of the situation you allow you to fully focus on recovery. Helps to prevent financial hardship: Disability insurance can help you avoid going into debt or bankruptcy.

Cons Explained

Individual plans will cost you: Individual disability insurance can often cost between 1% to 4% of your annual income. Disability insurance is often more affordable through a group program. If your employer offers it, you may save money by opting for this coverage vs. buying an individual policy. May require a medical exam: You may need to have a paramedical exam, similar to a physical check-up before an insurer approves your disability insurance policy. Depending on your health status, this can add exclusions and limitations to your coverage. Can have waiting periods in which you receive no benefits: Most disability insurance policies come with an “elimination period.” This is how long you will have to wait from when a qualifying injury or illness happens to when you start receiving payouts. It’s not uncommon for elimination periods to be around 90 days under long-term disability policies. If you don’t have an adequate emergency fund in place, you’ll need a plan to cover your expenses until your policy kicks in.

Is Disability Insurance Important?

While it’s easy to believe you’ll never have a disabling event, statistics tell a different story. The Social Security Administration notes that one in four Americans who are 20 years old will become disabled before reaching retirement age. It’s a grim picture, but it highlights that if you rely on your income to live, disability insurance might be an essential part of your financial planning. This type of insurance can provide a safety net to cover you and your family after your savings run dry.

If you become disabled and can no longer work, Social Security Disability Insurance (SSDI) may be able to help. This federal program provides a limited amount of money each month to those who are disabled. The average SSDI payment in 2021 is $1,310 a month. In order to qualify, you must have earned enough work credits, have a recent work history, and have paid into the program. Additionally, you must meet the Disability Determination Services office’s definition of disabled, which states you cannot engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that may result in death or that has lasted or can be expected to last for a continuous period of no less than 12 months. If you qualify, it can take time for your claim to get processed; there is also a six-month waiting period before payments kick in. If you need more money each month for your living expenses, it might make sense to get private disability coverage, even if you’re eligible for SSDI.

Short-Term vs. Long-Term Disability Insurance

There are two types of disability insurance, short-term and long-term. Here’s a quick look at the differences between the two. With a longer elimination period, long-term disability benefits can start months after a qualifying event. But, this policy can protect you for years, long after your emergency fund runs out. Some people have both policies in place. They use the short-term disability payouts to cover their expenses until the elimination period is over on the long-term disability policy. If you go this route, you’ll have to pay for both policies, but you provide maximum protection for yourself and your family.