Disability insurance is typically not a very hot topic. If you’re with some friends at a party and someone brings up disability insurance, you are sure to get a couple boos. It’s quite possibly one of the driest subjects out there, however it’s one of the most important decisions you could ever make!
Working in the construction industry, I know how painful loss of income can be. I’ve seen construction workers injured severely and seeing them go without the ability to work is truly heart breaking. Unfortunately, most of the workers I know never take our disability insurance. And this is not just important for the construction industry. Loss of income can affect any industry; no one is really safe from a health disaster!
I scoured the internet and found a couple statistics that I found interesting. They are somewhat shocking and you may already be dialing a disability insurance company after reading these:
-Three in 10 workers entering the work force today will become disabled before retiring.
-71% of American employees live from paycheck to paycheck.
-Over 51 million Americans are classified as disabled, representing 18 percent of the population.
-The average long-term disability absence lasts 2.5 years.
-In the last 10 minutes, 498 Americans became disabled.
Shocking isn’t it? Well good, that was my goal! So now that you’re somewhat scared, let’s get into what disability insurance is and go over some basics.
What is disability insurance?
At the core, disability insurance protects your income up to a certain amount if you are away from due for long periods of time due to an illness or injury. Basically, disability insurance ensures that you have a steady paycheck coming in when you are no longer able to work. This can be a peace of mind especially for those who work in labor heavy industries.
An unfortunate Monday morning
Imagine working as a logger getting paid a weekly salary of $1,000. Then one chilly Monday morning you’re still a little tired and accidentally swing the chainsaw and severe an arm off. Talk about the Monday blues! Well, you’re going to be out of commission for a while. Instead of going without a paycheck for many months to come, you can take out your disability insurance instead. I think you get the picture.
Disability insurance maintains your current lifestyle
We all take out insurance to protect our assets. We take our car insurance to protect our cars from having to pay for expensive damage. We take out renter’s insurance to protect our belongings from theft. We take out life insurance to protect our family from the expenses of a sudden death. We also take out medical insurance to protect ourselves against hospital expenses. But do we protect ourselves from loss of income?
We all enjoy a certain lifestyle. Some of us like to eat out on occasion. Some of us have hobbies. Some of us even enjoy working out every day! All of these cost money and we pay for them with our day job paychecks without even thinking about it. Taking out disability insurance protects our loss of income and will ease the burden of losing your day job income. Furthermore, it ensures that we can keep living the lifestyle we’ve chosen. There’s really no way around it, disability insurance is that big of a deal.
Two forms of disability insurance
The first form of disability insurance is something called an employer sponsored policy.â This type of policy is something that is typically brokered through your employer. These policies are significantly discounted due to so many employees being part of the same plan. On average these group policies cover up to 60% of your day job income.
One caveat though, since these plans are for groups of employees, you may lose the privilege if you change employers. This will depend on the fine print. Some companies offer plans where your disability insurance plan travels with you from employer to employer, this is what I have and it’s very sweet!
The second form of disability insurance is private disability insurance plans. This type of plan is for people who work for small scale employers who may not offer disability insurance group plans. This is also the option you’d have to go with if you were a freelancer or self-employed. These policies are also much more comprehensive so they are typically significantly more expensive than group plans. At the end of the day, either are good options as long as you have some sort of disability insurance to protect potential loss of income.
Short-Term vs. Long Term Disability
Short-term disability is what your employer calls sick time.â This can range anywhere from a couple days to a couple weeks. Other factors like your length of employment also play into this. For example, I get four weeks of PTO at the company I work for. This can be used for sick leave or vacation.
But what happens when all of your short-term disability runs out? This is where your disability insurance kicks in. Although there is no law that requires employers to provide long term disability insurance, almost half of major companies do offer it.
Do your due diligence and research to see if there is any overlap between short-term disability insurance and long term disability insurance. You wouldn’t want to be paying extra premiums for nothing. I’m sure the insurance companies won’t mind though!
Will social security cover me?
Haha, now that’s a joke! Like anything government related it’s going to be hard to qualify for. In the off chance that you do, you will be disappointed in the amount of insurance benefits you do receive. I recommend that you ignore any social security disability benefits and treat it like you do for retirement, a nice little bonus!
Disability definitions you need to know
Insurance companies enjoy separating out benefit packages. So, it’s no surprise that they have three definitions for disability insurance benefits and how you qualify for them. Check them out:
-Own-occupation: This is the most basic and covers the most. In simple terms, it means that you are no longer able to perform your work duties therefore you are eligible for benefits.
-Income replacement: This definition of a policy says that you cannot be working at your original job or be working for another employer while you are receiving benefits.
-Gainful occupation: This means that you have the inability to carry on your typical work duties not only for the job you can’t perform anymore but also any job related to your educational background. This is a very stringent definition. You’d have to prove you can’t work in any job pretty much. Good luck with that.
When long term disability insurance is not for you
Sometimes, long term disability insurance just isn’t for you. Your personal situation might actually be better off without taking out disability insurance. A great example is if you’re married and both of you work. If you can survive on just one income, there is no point to disability insurance. It just doesn’t make sense and you’re throwing money down the drain pretty much. There are other situations like this but I won’t go into them now. Use common sense and you will make the best decision for you and your family.
Will you be buying disability insurance now?
Hopefully after reading this article you are starting to ask yourself that. Everyone will have a different answer. But for me, I’m glad I bought it. Not being married, if I lost my one income, I wouldn’t be making it especially with the high cost of living in California!
So, what about you, will you be buying disability insurance? Comment below if you currently have it or plan on buying it. I’m looking forward to hearing varied opinions on this topic!