Why You Need Disability Insurance

by Hank Coleman

Why you need disability insuranceAt some point in your career, you are going to get hurt. It is almost inevitable. Over a third of all Americans will eventually find that they disabled at some point during their careers and unable to work for an extended period of time according to the Social Security Administration. How will you pay your bills? How will you support your family while you are disabled? How long will your emergency fund last you and your family? It is estimated that over 70% of American employees are not covered by some type of private long-term disability insurance plan. That is why you need disability insurance.

Why You Need Disability Insurance

Becoming disabled either through illness or an accident and being unable to work is a large contributing factor to many financial problems. Almost 50% of all home foreclosures are the indirect result of someone becoming disabled. It has a snowball effect. First, you think that it could never happen to you, but then you get hurt on the job or in a car accident. You think that you will be able to bounce back quickly, but then your recovery period drags on and on. Since you are not working, you are not receiving your regular paycheck. You and your family quickly go through the little emergency savings that you have struggled to build up. You then start relying more and more on your credit cards to help make ends meet. Do you see how it can quickly get out of hand?

Social Security Isn’t Enough Insurance

Many people mistakenly think that they are covered under Social Security for disability insurance. So they forego purchasing additional private long-term disability insurance. But, disability insurance provided by the Social Security Administration is typically not enough to continue supporting your family over a long time period. The average payout of Social Security Insurance is 40% of your income. This is simply not enough to protect your family. The most important asset that young Americans have is their ability to earn an income. Studies have shown that a 30 year-old male is four times more likely to become disabled than to die. At that rate, disability insurance is just as important as having adequate life insurance.

Disability Insurance And Your Emergency Fund

Disability insurance may be an expensive option, but there is one way that you can reduce your costs. You can purchase a long-term disability insurance plan that does not kick in until you have been disabled for over six months. Initially, you may want to balk at a plan that waits so long, but long-term disability insurance premiums are greatly reduced if you wait to start collecting for a disability claim against the policy. Most plans let you choose the waiting period between 30, 60, 90, and some up to 180 days. Typically, the longer waiting period you choose when purchasing your policy will help you to find a cheaper annual insurance premium. This is why it is imperative that you have a fully funded emergency fund with three to six months of living expenses. Having your emergency fund in place can save you thousands of dollars in disability insurance premiums by allowing you to accept a policy with a very long waiting period.

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Now is the time to consider purchasing private long-term disability insurance. You may not be as covered as you thought you once were. No longer can you count on policies from the government or group policies at work with less than 50% providing them. There are ways to lower your premium costs though such as boosting your emergency fund and extending your waiting period. Do not make the mistake of waiting to purchase disability insurance because you think that it won’t happen to you.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 592 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 4 comments… read them below or add one }

101 Centavos

Besides short-term and long-term insurance through my employer, I also have the delightfully termed “accidental death and dismemberment”. Insurance people are such jolly characters.

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KC @ PsychoMoney

Interesting. I never really thought about disability insurance before. I will have to check it out a bit. But then again how able do I need to be if all I do is online.

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Miss T @ Prairie Eco-Thrifter

We have disability insurance because we work in pretty specific fields and it is a way we can secure a decent income if something happened. To me it is worth the premiums.

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cashflowmantra

I knew that more people are disabled than die, but didn’t realize that the number was 33%. And yet I think that less people carry disability insurance than life insurance. That sounds crazy to me. I have both and am glad I do though I haven’t had to use either yet (not that you couldn’t figure out the life insurance usage).

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