You’re probably in good health, and you have life insurance in place. What if you’re disabled and you can’t go to work? Disability insurance can cover a huge portion of your income for an extended period. But why do a few of us have it?

 

Reasons Why You Need Disability Insurance Than Life Insurance

Disability insurance is something everyone hopes to never need, but it can be beneficial if you’re unable to work due to an injury. Unless you’re one of the fortunate few with savings that can go for long, you can be in a serious problem.

 

Did you know?

• Nearly 70% of American workers live paycheck to paycheck – women are particularly vulnerable compared to men.

• The monthly benefit released by SSDI as of 2019 is estimated at $1230.

• About 25% (1 out of 4) of today’s 20-year old are likely to be disabled before they reach their retirement age.

• A disability that lasts three months can hurt a person’s financial situation

• Every 10 seconds, an average American employee will experience some accident or injury that puts him out of work for at least one month.

Potential Financial Loss

Your income is an important asset because it accumulates throughout your career. For example, a 30-year old who earns $ 50,000 per month can lose up to $1.5M by the time he or she reaches the retirement age.

If you work in an injury-prone profession, you need disability insurance. So, why should people consider disability insurance than life insurance? Before we delve into the details let’s look at two key statistics.

• A 30-year old is four times likely to be disabled before they reach the age of 50 than dying

• 1 in 6 employees will be disabled before they reach 50 years and unable to go to work for at least three months period

If a disability is something that ever happens, you should consider two options.

Long-Term Disability

A long-term disability cover will provide you with an income for some time. This could be half of your income or two-thirds of your income. You can get a lump sum or a long-term payment stream. But the key reason why people go for long-term insurance is it’s all-encompassing.

The point to note here is that you’ll never be in a position to get your full income.

Before you go for a long-term disability, you should know the amount you can get paid in case of a disability. Also, the insurer should be clear about the elimination period. Generally speaking, the insured won’t get paid before 90 days lapses.

Also, you should look closely at the cost of living. Are you going to be paid for specific years or until you reach the age of 65?

Owner occupation

If you can become disabled you can qualify to do something else, but not the job that you were once doing. You can get a waiver by paying a little more, but you have to do your due diligence.

When it comes to disability insurance, there’s no one-size-fits-all. Can you have too much insurance or not enough insurance. There are three types of owner-occupation:

Transition occupation

If you can’t work in your current occupation, you can get the benefits of starting a different job.

Transitional occupation

If you can work in your former job due to injury, you get the benefits to cover for the difference between new lower salaries and higher older salary.

Owner occupation (not engaged)

If you can’t work on your current job and you’re yet to secure an alternative job, you get the benefits. But once you get another job irrespective of the field, the benefits are terminated.

There are two protection features of a disability insurance

Guaranteed renewable – the insured has the right to renew the policy or terminate it. You can also increase the premiums.

Non-cancelable – the policy cannot be canceled, except for non-payment of premiums. But it gives you the right to increase premiums.

Short-Term Disability

Short-term disability cover replaces a portion of your paycheck (about 80% pretax) for the period you can’t work due to an injury. It’s offered by the employer but some states require that you have a separate cover. Generally, the waiting period is a few weeks before the benefits are paid out.

RBC Survey

It’s estimated that 29% of people with disability insurance had to dig deeper into their pockets. The survey also stated that 17% took more debt while 9% had to borrow (family and friends).

While we all wish that we may never get disabled in our lives, this is a probability factor. It’s time you get disability insurance.

 

The opinions expressed by the author are his/her own and are not intended to serve as specific financial, accounting, or tax advice.