December 2, 2020
How are you protecting your income?
Maybe you already have a life insurance policy worth about 10 times your annual earnings. That should help protect your family in the case of your untimely passing.
But what if you aren’t able to work during your lifetime?
It’s more common than you might think. 1 in 4 20-year-olds will become disabled before they reach 67, and 67% of private-sector workers have no disability insurance.¹ Here are some basic facts about this essential line of protection for you and your family.
Disability insurance has a lot in common with life insurance.
At first blush, it might be hard to distinguish between life insurance and disability insurance. But there are some key differences that are worth exploring.
Disability insurance activates when you can’t work
Life insurance pays out in the case of your passing. Disability insurance can provide a stable income replacement if an injury, accident, illness, or something else renders you unable to work.
There are two types of disability insurance: long-term and short-term Short-term disability insurance can replace your income if you can’t work for a few months. Long-term disability insurance can protect you if a serious health issue takes you out of the field for more than 6 months.
Employers sometimes offer disability insurance (but it might not be enough) It’s not uncommon for employers to provide their workers with some form of disability insurance. As of 2018, 42% of private sector employees had access to short-term disability insurance via their work, while 34% had long-term disability insurance options.²
However, it’s worth noting that this might not be enough to fully protect you and your family. Disabilities can increase your expenses, so you’ll need a strategy that replaces your current income and then some. Make sure your employer-provided plan will give you enough to cover all of your needs in the case of a disability and help your family for the long haul. If it doesn’t do either of those, you may need to turn to private coverage.
The government offers disability benefits (but they might not be enough, either)
Social Security does provide disability coverage to individuals who have worked long enough and paid enough into the system. However, applying for it is a time consuming process. Also, average monthly payments were just over $1,000 as of 2017.⁴ Do your research to see if you’re eligible and if you’ll receive enough before you apply.
Above all, meet with a licensed and qualified financial professional to weigh your options and start developing a plan. They’ll assist you as you evaluate your need for protection, what employer-provided options you might have, and how disability insurance fits into your overall financial strategy.
¹ “Fact Sheet: Social Security,” Social Security Administration, https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
² “Employee access to disability insurance plans,” Bureau of Labor Statistics, U.S. Department of Labor, https://www.bls.gov/opub/ted/2018/employee-access-to-disability-insurance-plans.htm
³ “Disability Benefits,” Social Security Administration, https://www.ssa.gov/benefits/disability/
⁴ “Disability Insurance: Why You Need It and How to Get It,” Barbara Marquand, Nerwallet, Oct. 20, 2017, https://www.nerdwallet.com/blog/insurance/disability-insurance-explained/