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The Case For Disability Insurance

Disability InsuranceGuest post by Richard Peace. Richard is a licensed Benefit Consultant (LHIC) at Financial Benefit Services managing various employer groups in the Dallas/Fort Worth Metroplex. Follow him on Twitter @richpeace.

Although you may know someone with a disability, chances are you can’t truly comprehend the lifestyle change that individual has undergone unless you’ve been through a similar circumstance. Understandably most people avoid such topics, however, just like with any type of insurance it’s important that you consider what could happen down the road. While any accident resulting in a disability would be awful, one of the worst parts would be losing your ability to work. If you don’t currently have disability insurance, it’s worth understanding what makes it so vital.

What Disability Really Means

Most people who don’t get disability insurance decide not to because they simply don’t believe something will ever happen to them. At the very least, they find it hard to believe that they’ll suffer the kind of accident that would leave someone irreversibly disabled.
The problem is that you have a 30% chance of ending up disabled. However, this doesn’t necessarily mean using a wheelchair for the rest of your life or losing your vision. It just means you’ll miss work for at least 90 days during your career. Also, that likelihood works against you the older you get. By the time you hit 50, you’re looking at a one-in-five chance of becoming injured in a way that causes you to be disabled for at least five years.
When you think of it like that, not having disability insurance is a huge gamble. Most of us do not have enough money in savings to comfortably live for 90 days. Even if you did, do you really want to go through those savings when you could have been making small payments toward disability insurance this entire time?

You Most Likely Don’t Have It Already

Believe it or not, most people aren’t even aware of the kind of insurance they have. A lot of employees believe that disability insurance is just automatic and pays out if they get hurt on the job no matter what. Instead, 70% of private companies don’t provide their workers with any kind of long-term disability insurance. Do you really want to be in for the surprise of your life after you’ve already suffered a debilitating accident?
Even if your employer does provide it, you won’t be able to take it with you if you change jobs. Say you find a position where you can bring in some extra income part-time to help with your bills and that you can perform despite your injury. Take that job and you’ll lose your disability payments. Of course, those payments probably weren’t a whole lot to begin with. Even though you’re missing your entire income, you most likely were only getting about 60% of it back. Check to see if your employer is one of the 30% who offers insurance. If they don’t, make sure you sign up for it.

Workers’ Compensation Probably Won’t Help

Along the same lines, there are a lot of workers who believe that workers’ compensation will take care of them should such a terrible injury take them out of their job. This isn’t necessarily as straightforward as you may think. Many people have had to learn the hard way that they can get hurt at work and not receive the kind of help they thought they were entitled to.
If you receive a mid-to-high-range salary, it’s almost guaranteed that you’ll be disappointed by what workers’ compensation has to offer. The amounts vary widely from state to state, so much so that it’s difficult estimating how much you could expect.
In any case, that’s not relevant here because most accidents that leave people injured or disabled to the point that they can’t return to work, don’t actually happen while they’re on the job.
Simply put, you could be too hurt to work with no workers’ compensation to show for it.

Social Security Isn’t Great Either

Oh and in case you’re wondering, no, Social Security doesn’t do much either unless you think $1,100 is going to get you through the month. Making matters worse is that almost 60% of applicants get denied disability benefits from Social Security on their first try. In fact, you can only apply for them after you’ve been injured for five months and you can prove the injury is supposed to go on for more than a year.
Keep in mind that those Social Security benefits (yes, the ones you already paid for) are taxable too.

Buying Your Own Policy

By now, hopefully it’s become clear that you should really have your own disability insurance policy. It’s doubtful you can depend on your employer to provide you with missed income, and other options don’t do much either. More and more Americans are following the same path, especially when they find out how affordable it is. Much like auto insurance, you can buy a lot of disability insurance for very little.

Of course, how much you actually need will depend on multiple factors. If you’re single, you won’t need as much as if you have four kids depending on your income. Other factors may affect your needs as well. Most suggest you have enough coverage for 60% to 70% of your income before taxes. You’ll also find that like auto insurance, there are different levels of coverage. While long-term plans will cost more, they’re definitely worth it. Most would be more comfortable with auto insurance that goes beyond just handling the bill for a fender bender. The same goes for disability insurance. For peace of mind, be prepared for the worst case scenario.

The vast majority of injuries are going to be temporary or permanent, which makes long-term insurance all the more important. This is also why you should disregard coverage for “partial” disabilities. Again, it will probably just be a waste of money. Fortunately, the good news is that you will most likely never suffer a life-changing injury that leaves you disabled. Still, disability insurance is so cheap that there’s no point in not paying for it now in case something happens in the future.