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Disability Insurance: Is It Really Worth It?

An injury or a physical or mental sickness can have devastating effects on you financially. Besides the expense of treatment, many people who are dealing with medical issues and are unable to work, find that the loss of income makes a bad situation even worse. But there is a way to protect yourself from loss of income due to an inability to work: it’s called disability insurance.

What is Disability Insurance?

Disability insurance helps you and your family financially if you become disabled from a sickness or injury and are unable to work. A disability insurance policy offers the protection of knowing that you will continue to receive a percentage of your income each month to help cover your mortgages, bills and other living expenses. There are several types of disability insurances including those provided by the government, your employer and private policies. 

What Are the Different Types of Disability Insurance? 

Disability insurance can be broken into two broad categories: short-term and long-term coverage. 

  • Short-term disability insurance policies are meant to help when you are unable to work due to becoming temporarily disabled. Short-term disability insurance usually lasts between three and six months depending on the policy with a waiting period of a few days before benefits start. Many employees offer short-term disability insurance as part of a benefits package. 
  • Long-term disability insurance policies last for years, not months like short-term policies, have a much longer waiting period and usually start at the end of the Short Term coverage. However, some long-term policies provided by the employer can force people to wait months or even years before they see a dime. Read the policy carefully! The government also provides long-term disability coverage with smaller benefits for those who qualify, but the qualifying terms and definitions are quite onerous.

Is Purchasing a Private Disability Insurance Policy Worth the Cost? 

The premium for an Individual Disability policy will generally be between three to five percent of the policy holder's yearly salary. Why so much? With Life Insurance, the payout is once and the likelihood of dying before retirement is not great, but the fact is that people can and do experience career-ending/altering medical conditions sometimes more than once during their working careers. In fact, according to a recent study, a person who was 20 years old in 2011 has an almost one in three chance of becoming disabled for at least six months before retiring. Similar statistics are available for other ages, but the fact remains, that no matter your age, you are many times more likely to suffer a disability than you are to die during your working career. 1

The looming question for many people is when does the cost of disability insurance make sense and when is it a better financial decision to not buy it. Most financial experts will suggest that disability insurance is a good idea for people who:

  • You are self employed 
  • Are high earners and the sole breadwinner for their family.
  • Are young with decades of earning potential in front of them.

On the other hand, people who fall into these categories probably should think twice before purchasing disability insurance:

  • Low-income earners,
  • Those over the age of 55

Choose the Right Disability Insurance Policy for You

If you determine that a disability insurance policy is right for you, make sure you pick the right one. Look for a policy which offers:

A non-cancellable guaranteed renewable policy to avoid having your insurer cancel your policy even if you pay your premiums on time,

  • "First payer" status to ensure the insurer pays you the full benefits although you have additional income.
  • A reasonable waiting period before coverage begins to avoid having to having to go for months or years without benefits.
  • Coverage if you are unable to continue your current profession even if you may be able to find work in a job paying less. 
  1. www.nytimes.com/2012/10/20/your-money/life-and-disability-insurance/determining-if-disability-insurance-is-necessary.html

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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