Don’t Overlook Disability Insurance: Why You May Need It
Yahoo! Finance recently examined the 10 financial products that one should have in order to be financially secure. Not surprisingly, five of those 10 involved insurance policies. Included in the mix were health insurance, homeowners or renters insurance, auto insurance, life insurance, and disability insurance. While the vast majority of individuals would agree on four of the five points, disability insurance often gets swept under the financial planning carpet. Many customers consider it unnecessary because they’re certain that similar coverage and protections exist for them in other assets.
However, as Yahoo! contributor Maryalene LaPonsie notes, “disability insurance can trip up some otherwise money-savvy individuals.”
“Disability insurance provides money in the event you are unable to work for an extended period of time,” she adds. “The details may vary by policy, but most generally provide payments equal to 60 percent of your gross income.”
If you think that disability insurance may be a frivolity and therefore unnecessary, pause for a moment to consider these factors:
What does your emergency fund look like?
In a recent Gallup survey, the polling organization found that job loss would quickly lead to hardship for many in the United States. Gallup posed the question, “If you were to lose your job, how long could you go without a job before experiencing significant financial hardship?”
Forty-three percent said that they could go up to one week (14 percent) or up to one month (29 percent). Only 31 percent claimed they could go up to one year or more. While job loss and disability are two separate things, the Gallup survey illustrates the point well regarding how few workers are prepared for disruptions in their abilities to earn a living.
What is the waiting period on Social Security Disability?
LaPonsie adds: “Social Security Disability will provide benefits if you are unable to work for at least a year or are terminally ill, but even if you’re approved, there is a six-month waiting period before benefits begin.”
What would 43 percent of Americans do in the five-month period while they’re waiting for benefits to kick in?
To make sure that doesn’t happen, many can take advantage of disability insurance offers through voluntary workplace benefit programs or they can purchase directly through a carrier.
What about worker’s compensation?
In a separate piece for The Consumerist, Karin Price Mueller notes the false sense of security that many Americans have regarding worker’s compensation. Bottom line, in Mueller’s estimation: You can’t count on it.
“Even though it’s required in all states, worker’s comp is only helpful in certain situations,” she explained. “According to the National Safety Council, nearly 75 percent of long-term disabilities are not from a work-related cause. If you do qualify, you’d generally get about two-thirds of your income.”
Furthermore, only five states — New York, New Jersey, Rhode Island, California, and Hawaii — provide short-term disability benefits (usually up to six months), while the rest do not.
Mueller recommends customers to buy their own disability insurance policies, stating that “while it’s the most expensive option,” it’s also the most flexible. “Unlike employer policies, the insurance will stay with you as long as you pay the premiums. Most plans will cover 40 to 65 percent of your income, and if you pay the premiums with after-tax dollars, the payouts when you’re disabled are tax-free.”
Disability insurance often gets lost in the mix of insurance products. Life, Auto, Health, and Homeowners/Renters, are all necessities if you want to stay secure, but don’t discount the value of this additional policy. Like any insurance, it’s something you hope you’ll never need, but should the situation ever arise, you’ll be grateful it’s there.