People are pretty good about insuring their property; their cars, their home, their boats, and their valuables. Things that they can actually see, like their heirloom jewelry, get insured while things like their health or income stay at risk.
When you are in good health and feel fine, it’s easy to forget that it might not always be that way. It’s hard to imagine a future where you get so sick or seriously injured, that you can’t work for six months. It’s even harder to imagine that one day you might not be able to work ever again.
The harsh reality is that once you hit 40, there’s a 43% chance of becoming disabled for a period of 90 days or more, and that’s even before you hit 65.
Why insure your income?
Over 60% of working Americans admit that they would be unable to cover their living expenses for even year if they suddenly lost their income due to a disability.
Imagine feeling so ill that you can’t even get out of bed, you can’t work, and yet you have to worry about how you’re going to pay your bills or expenses. Think about it — what would happen?
You’d still have to:
- Pay your rent or mortgage
- Pay all your bills and credit cards
- Buy food and household goods
- Pay for your kids’ education
- Pay your car loan and keep up with the insurance
- And get to the point where you can save for your retirement
Your options are extremely limited once you are actually in this situation. You can’t get a loan because you have no income. Collecting Social Security takes a very long time, and you have to be accepted first – and 70% of applicants are turned down. If you have investments and need to sell quickly, will you actualize your losses? How much money will you actually end up with?
Long Term Disability insurance pays you if you become sick or injured and can’t work. It’s that simple. Typically, the policy replaces the majority of your income and it can pay up to the age of 65. There a waiting period, and depending on what you elect, it can be from 30 to 90 days – which is kind of like a deductible.
How do I know if I need Disability Insurance?
If you work, you need disability insurance. One in eight workers will end up being disabled for five or more years during their working life. Most of the common excuses for not getting disability insurance are myths.
Women think they don’t need disability insurance because it’s more of a concern for men. Unfortunately, more than half of long-term disability recipients over the past few years have been women.
Young people think they will either never need it, or that they’re just too young to have to worry about it. Alas, the Social Security Administration estimates that one in every four 20-year-olds will be unable to work due to disability, before they even reach 67. Nearly half of disability recipients in the past few years have been under the age of 50, with a third of that group being under 40.
Many people think that Worker’s Comp will be enough coverage. However, as the name would suggest, you only get income replacement if your injury or illness occurs on the job. Luckily for your employer, fewer than 5% of these disabling types of illnesses and accidents are work related. More importantly, 90% of long-term claims are for illnesses, not for accidents.
What about my other options?
Some people look at “Aflac” as an alternative to Long Term Disability. Aflac (or similar) only pays you for a short period of time. Unfortunately, the average disability claim lasts around 32 months.
Aflac and other alternatives also probably won’t replace your entire income. Social Security disability has an average payment of $1,111 per month. It’s important to note that only 30% of Social Security disability applicants are actually accepted.
How much does Long Term Disability Insurance cost?
Like any insurance, the cost of Disability Insurance varies depending on a number of factors. Factors like age and the amount of income you want to replace will vary the cost, and in some instances, occupation can play a factor as well.
It’s hard to imagine that over 60% of wage earners know someone personally who has been unable to work for three or more months due to disability. And yet, many of these people still don’t think they need Long Term Disability Insurance.
In the long run, insuring your income is a much safer option than just assuming you won’t ever need help. Relying on friends and family to help you or your ever-shrinking savings account to support you is quite a gamble.