You’re young and in good health—why would you need disability insurance?
If you’re a Millennial and haven’t thought about disability insurance, you’re not alone. But think of this: how long could you go without a paycheck. Weeks? Months, maybe? What about years?
This scenario isn’t out of the question in the event of a serious illness or injury. Before you dismiss disability insurance, let’s take a look at the benefits and how it can protect your income in the event the unexpected happens.
Why is it Important to Have Disability Insurance?
According to statistic provided by the Council for Disability Awareness, just over one in four of today’s 20 year olds will become disabled before they retire. And keep in mind that you can become disabled from more than just an accident. What if you had cancer, or heart disease, for example? Diseases can prevent you from being able to work just like an injury. The end result is a hit to the income you rely on for everything from your mortgage to your groceries.
What About Social Security?
Social Security disability insurance (SSDI) is a federal program that can provide monthly benefits if you become disabled before retirement age and are unable to work. While this provides an added layer of security, it may not necessarily be wise to rely on SSDI in the even you’re unable to work. For one thing, the coverage has its limits. SSDI payments tend to be relatively small; the Social Security Administration lists the average monthly benefit for a disabled worker at $1,171.27. In addition, Social Security has strict rules about what counts as a disability, noting that:
A person is disabled under the Act if he or she can’t work due to a severe medical condition that has lasted, or is expected to last, at least one year or result in death. The person’s medical condition must prevent him or her from doing work that he or she did in the past, and it must prevent the person from adjusting to other work.
Government options may not even be available to you, and the income received from them may not cover your needs.
How Much Disability Income Insurance Do I Need?
Short Term vs Long Term Disability Insurance
Individually owned disability insurance is intended to replaced anywhere from 60-70% of your gross income on a tax-free basis if an accident or illness prevents you from working. There are two types of disability insurance:
Short-Term Disability Insurance has a maximum benefit period of no more than two years.
Long-Term Disability insurance has a maximum benefit period ranging
from 365 days to age 67
Many employers offer some type of disability insurance, which can be very beneficial, but it is typically short-term. If you’re ill for a long period of time, you might require more coverage than the terms of your employer’s disability insurance can provide. That’s where long-term disability insurance comes in. Also, if the employer pays the premiums, your disability benefit is typically taxable.
Long-Term Disability Insurance Costs
Some things to keep in mind when determining the price of a long-term disability insurance policy:
Time is On Your Side: The younger you are, the cheaper long-term disability insurance tends to be.
Elimination Period: This is the waiting time between the onset of your disability and when you can start receiving benefits. The longer the waiting period, the cheaper your premium will be. If your employer offers paid sick time or a short term disability policy, you might want to consider this when choosing an elimination period. A typical waiting period is 90 days.
Non-Cancellable Contracts: Non-cancellable means the policy can’t be cancelled by your insurance company (unless you don’t pay the premiums). This way, you can choose to renew the policy without a premium increase or a reduction in benefits.
Future Purchase Option: Also known as a guaranteed insurability options, this feature allows you to increase the amount of coverage as your income increases.
Insurance That Works When You Can’t
If you’re injured and unable to work, will you be able to keep paying your bills? Disability insurance can protect you and your loved ones from the inevitable bills that could add up in the absence of a paycheck. To protect you and what matters most in your world, ask your Farm Bureau agent how disability insurance can keep working—even if you can’t.