Should you take out disability insurance?

None of us are immune to disability or illness. Here at LivingBetter50, we believe that Disability insurance can provide you and your family with peace of mind and protection against financial hardship. It allows you to remain in your home and keeps the dreams of planning for retirement or sending kids to college alive.

The latest statistics indicate that 1 in 4 20-year olds today will become disabled before they retire. This rises to a 50% chance of becoming disabled for three months or more by the time you are 35.  If you’re 50, there is a 33% chance of becoming disabled for three months or longer before you retire.

If you are just starting out in your career, you may have student debts to repay. If you are further on in your career, you may have family responsibilities, car, and mortgage payments along with other lifestyle costs.

Disability insurance protects against financial hardship if you are not able to work due to injury or sickness. There are two types of plans- long term and short term.

Long term disability insurance provides cover for disabilities that last longer than short term plans usually at least six months. The policy pays out 40-60% of your salary until you return to work, retire or a predetermined term expires.

On the downside, there is usually a long waiting period before the policy starts paying out which can be anything from one month to two years.

Short-term disability insurance covers disabilities that last for up to a few months. The pay-out is quicker and higher at 60-70% of your salary but you need to bear in mind that it may only last for a few weeks.

SSDI is also available- This stands for Social Security Disability Insurance which is state funded. However, this is means tested, very difficult to qualify for and the benefits paid out are likely to be very low. Military personnel have a slightly different state system to work with including VA and TDIU. You can check out this VA disability calculator for more information. 

Workplace disability insurance

Most employers offer disability insurance in the form of a group plan but this doesn’t allow you to work in any occupation so you need to ensure that you have true-own occupation insurance which will pay out in the event that your role changes.

You also need residual cover which protects you if you are partially disabled but still able to do some of your roles. This applies if you lose 15-20% of your income and are under the care of a physician.

With workplace disability insurance, you need to bear in mind that any disability benefit paid for by your employer is tax deductible so a $10,000 benefit may only be worth $6,500 after tax has been paid. This contrasts with benefits received from an individual insurance policy which are tax-free.

Where to go for insurance? Make sure you shop around with different providers to get the best deal from your disability insurance. If you have an insurance agent, they may be able to help. Otherwise, contact us and we will arrange quotes from top-tier companies for you.