Do You Need Disability Insurance?

Most of us have insured our house, possessions, cars, and lives. However, have you insured something that might be even more important: your ability to earn an income consistently? This may be the most important asset you have.

Consider the following: if you currently earn $50,000 a year and you’re 35 years old, from now until you’re 65, you’ll earn $1.5 million. That assumes your income never increases, which it almost certainly will.

Doesn’t that seem like it might be worth protecting? Is your house or car worth $1.5 million? Most of us don’t own any single object worth $1.5 million.

What Are the Chances of Actually Needing to Use Your Disability Insurance?

 Disability insurance ensures your ability to earn income. Many people hear the word “disability” and immediately think of an accident. But most long-term disabilities result from illness, such as heart disease or cancer. Every year, over 12% of adults in the United States have a long-term disability.

Not only that, but one out of seven employed residents of the United States will have a disability that lasts five years or longer before age 65. The odds of suffering a disability that lasts at least three months is over 50 percent. And the U.S. Department of Housing and Urban Development has estimated that 45 percent of foreclosures are due to disability.

What about social security? Social security does provide benefits, but qualifying is not always easy. The benefits provided are somewhat limited, even for the most frugal people.

How to Get Disability Insurance

Large employers typically offer short-term and long-term disability insurance. This coverage is frequently affordable and will cover 50-60% of your salary. The total payout may also be capped.

If you prefer or need to go with an individual policy instead of through your employer, be aware that they can be pretty expensive but have far more flexibility to provide what you need. The cost of an individual policy can vary dramatically, but expect to annually pay 1%-3% of your salary to replace 60% of your salary.

Some factors that influence the premium include:

1. The monthly payout. Obviously, the more money you would receive if you suffer a disability, the more your policy costs.
2. How “disability” is defined. Does it pay if you are unable to do your job? Or does it only pay if you cannot do your job and any other job for which you’re qualified? What if you can work part of a day, but not the whole day? Be sure you know what you’re getting and not getting.
3. How long is the waiting period before you start receiving your payments? The longer the waiting period, the less expensive the policy will be.
   • This is an excellent reason to have that 4-6 month cash reserve you’re always hearing about. If you don’t currently have it set aside, get started today!
4. Your occupation. Some jobs are more hazardous than others. Everything else being equal, a construction worker should expect to pay more than an accountant.
5. Cost of living. Some policies cover the cost of living increases. This can make a big difference, depending on the length of your disability.
6. Additional purchase option. Once you’re insured, this option would allow you to purchase additional coverage later on without having to submit it to another physician.

Disability insurance is the insurance that everyone seems to forget about, especially self-employed ones. But this may be the most important insurance you can purchase! Look into disability insurance today; your future and the future of your family may depend on it.