If you work for a living, your ability to produce income is your most important asset. So lemme ask you this, why aren’t you protecting it?
According to the Council for Disability Awareness, almost 70% of America’s private sector workers have no long-term disability insurance.
Before 65, you’re eight times more likely to become disabled than you are to die. Yet, if your family depends on your income, you wouldn’t dream of dropping life insurance. How does that make sense? If you’re dead, at least your family won’t have to support you financially. Just sayin’.
For singles, disability insurance is especially important. If you can’t work, who’s gonna pay your bills? Your cats?
Often I try to sex up serious financial topics to make them sound interesting. But try as I might, I can’t make disability insurance sound hot. It’s boring. And the circumstances under which you’d receive disability benefits are downright depressing.
Well, I don’t know what to tell ya. We have to talk about this. It’s too important to ignore.
So, without further delay, let’s do this.
Important Factors to Consider When Shopping for Disability Insurance
Disability insurance can get real complicated real quick so do your research before deciding on a policy.
When do disability benefits kick in?
Depending on your policy, you could be eligible to claim benefits after 30 days, 60 days, 90 days, 180 days . . . According to Ric Edelman, author of The Truth About Money, the most cost effective long-term disability insurance polices pay out after 90 days. An emergency fund should get you through this period.
How do I qualify for disability benefits?
Ummm, you become disabled.
Actually, there’s more to it than that. The type of disability coverage you should aim for is called “own-occupation” or “own occ.”
With an own-occupation disability insurance policy, you qualify for benefits if you can’t perform your current job, even if you’re able to work another job. Without it, if you can work, in almost any profession, no benefits for you.
I’ve always wondered, “If a disability rendered me unable to work as an accountant, what other job could I possibly do? I mean, is there anything less strenuous than sitting on your ass all day?”
Now is as good a time as ever to point out why you shouldn’t rely on the government for disability coverage. In order to collect Social Security disability benefits, you have to be totally disabled, period.
What else to look out for?
As with any insurance company, make sure your insurer has the financial wherewithal to pay out benefits if you need them. Insure.com has a nifty ratings lookup tool that provides the credit ratings of different companies.
Also, whether you’re taxed on disability benefits depends on whether you received a tax deduction on the premiums.
If you obtain long-term disability insurance through your employer, the premiums will likely be deducted from your paycheck on an after-tax basis. That means, you won’t pay taxes on any benefits you receive. Long-term disability usually pays about 60% of your salary. When you’re taking that big of a haircut, you probably can’t afford to pay any taxes on the benefits.
Although it may seem like a great perk, when your employer pays disability insurance premiums on your behalf, you’ll pay taxes on the benefits. Unless you can live on 60% of your salary minus taxes, look in to getting additional coverage.
Where to Find Disability Insurance
OK, so, uh, here’s the thing about disability insurance: It’s super expensive. When bought on the individual market, annual premiums run about 3% to 5% of your salary. Yikes! Getting insurance through your employer is probably the easiest bet, but still, I cannot emphasize this enough, DO YOUR RESEARCH.
You can also request quotes from companies such as Zander Insurance, MetLife, and Mutual of Omaha.
Have you ever been unable to work or know anyone who has?