Health and wealth are closely linked, so disability insurance can lend a hand with finances in the event of a debilitating illness or injury.
You have a 1 in 4 chance of suffering from a disability in your lifetime. Don't let it bankrupt you.
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What is disability insurance?
Disability insurance replaces part of your regular income in the event that you’re unable to work due to a crippling, long-lasting health scenario. Think of it as a safety net paycheck, offering financial protection in the form of wage replacement benefits.
Is disability insurance worth it?
According to a report published by the Social Security Administration in 2017, there’s a 25% chance that people from the ages of 20 to 67 will experience a disability for at least 90 days in their lifetime. Basically, disability insurance serves the same purpose as car insurance — it’s not guaranteed that you’ll need it, but it could protect your livelihood if you do.
What is an elimination period?
After you’ve become disabled, a specific amount of time must pass before you can start receiving disability benefits. This is called an elimination period, and if you recover before it ends you won’t be eligible for payout.
Types of disability insurance
There are two common types of disability insurance in the US: short term and long term. They both come with benefits caps — or how much the provider will pay you each month — and are designed to replace a portion of your regular salary.
|Short term||Long term|
|What does it cover?||60–70% of your regular base salary.||40–60% of your regular base salary.|
|What is the benefit period?||Depending on the policy, it can last for a few months but no longer than 52 weeks.||It’ll last the length of your disability, unless the policy specifies otherwise, but will end at retirement age.|
|When would I need it?||If you’re unable to work for a few months and don’t have a hefty emergency fund that can help see you through.||If you’re out of commission due to a debilitating injury or serious illness, and are unable to work for more than a year.|
Common reasons to get covered by disability insurance
Generally, each provider has specific criteria that agents use to determine whether or not you’re eligible for disability insurance benefits. But here are the sorts of things that can qualify:
- Severe back problems
- Injuries from an accident
- Disorders of the nervous system
- Disorders of the musculoskeletal system
- Debilitating mental health problems
Ways to get coverage
If you’re sold on the idea of securing a “replacement paycheck” in the event you can no longer work, you have a few options:
- Check for employee-sponsored coverage. Some employers offer disability insurance and help pay for the premiums, too. If you live in Hawaii, New York, California, Rhode Island or New Jersey, you should already have access to short-term disability benefits through your workplace — free of charge.
- Purchase it through your employer. You could add it to your regular insurance as a voluntary benefit, most likely at a group rate since it’s through the workplace.
- Purchasing it through a professional association. Check to see if you can get group rates through a professional association linked with your occupation.
- Buying an individual policy. Just like car insurance, you can get covered independently through an insurance company. Big and small providers offer disability insurance, so shop around for income protection plans to find your best match.
Average cost of disability insurance
The average cost of disability insurance is 1% to 3% of your annual income for a benefit that covers 60% of your regular earnings. So a person who earns $65,000 yearly can expect to pay to $165.50 per month. But keep in mind that the cost of disability insurance varies based on your age, income and type of employment.
Additionally, people over the age of 45 working in high risk jobs might be charged significantly more, just as a 25-year-old working a stationary job is likely to get the best price.
Price can also vary depending on how much coverage you get. So if you’re getting short term disability, which tends to be more expensive, think about how an emergency savings account could work in tandem with lower coverage to help premiums meet your budget.
Social Security Disability Insurance
Social Security Disability Insurance (SSDI) is a program that pays benefits to people with total disability who haven’t been able to work for a year or more. However, it’s difficult to get approved and the average amount you’d receive each month is less than $1,200 – so don’t count on it as a surefire plan.
How do I qualify for Social Security Disability Insurance?
To qualify, you must have had an “inability to engage in any substantial gainful activity” due to medical reasons, for at least a year. Additionally, you must have previously worked in jobs covered by Social Security, and you must meet the Social Security Administration’s “disabled person” criteria, which includes severely limited mobility and a monthly income of less than $1,220 a month.
It is also worth mentioning that 65% of people who file a claim for SSDI are denied, due to the strict criteria to be considered disabled. However, if you do qualify, it could take up to two years for benefits to start rolling in.
Though the possibility of becoming disabled can be disheartening, securing a backup source of income for yourself today could bring peace of mind tomorrow.
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