Most of us never think about the possibility of becoming disabled. If you have had a friend or relative who has been through this or if you have had some prior personal experience in this area, you may be more familiar.
So, what does a disability look like? It could be any illness or physical impairment that prevents you from working. Most people have some sort of sick days and vacation available to them to cover short term events. In those cases, the paychecks keep coming, you recover, and everything goes back to normal.
What if you had a stroke, a brain tumor, were in a severe accident (all things I've seen)? After your sick leave and other paid time off is used up, what will happen next? In most cases your employer will have to let you know that they can no longer pay you while you are recovering.
What are your odds of a disabling injury or illness?
You probably insure your home, your car and other personal assets. But what about the income that provides those assets? You might be surprised to learn what poses the greatest threat to most people during the course of one year.
Consider these statistics:
1 out of 5 : That your auto will be damaged in an accident
1 out of 21 : That you will have a disabling accident
1 out of 96 : That you will have a fire
1 out of 114 : That you will die
Source: Field Guide 2001, National Safety Council, World Almanac
Did you know: During the course of your career, you are three and a half times more likely to be injured and need disability coverage then you are to die and need life insurance.
Source: Health Insurance Association of America, 2000
Did you know: Approximately 30% of all people ages 35 to 65 will suffer a disability for at least 90 days, and about one in seven can expect to become disabled for five years or more.
Conditions Causing Limitations Number in 1000's Percent of All Conditions
Heart Disease 7,932 13%
Deformities, orthopedic impairments 7,672 12.6%
& disorders of the spine or back
Osteoarthritis and allied disorder 5,048 8.3%
Orthopedic impairment of lower extremity 2,817 4.6%
Asthma 2,592 4.2%
Diabetes 2,569 4.2%
Mental Disorders 2,035 3%
Cancer 1,342 2.2%
Source: Health Conditions and Impairments Causing Disability, US Department of Education. National Institute on Disability and Rehabilitation (NIDRR). Abstract No.16, Table 2, September, 1996
Disability Insurance can be a life saver in the event of a disability
In some cases, employers offer employer paid disability insurance that can cover up to two thirds of your salary depending on the policy paid for by the employer. This benefit is great as it is employer paid and added value to you. The downside is that the amount received is fully taxable, so you may be netting much less pay than you’re accustomed to.
The other type of disability policy is one you purchase individually. The downside is you pay the premium, but the upside is that benefits receive are tax free and the policy goes where ever you go and is not limited by the current job you have. If you have an employer paid policy, in most cases these are not portable, and you would lose the policy if you change jobs.
To make policies more affordable, it’s common that an individual would have to wait at least 90 days before receiving benefits. So there needs to be a plan for that gap in coverage. Also, some policies will limit benefits to a specific number of years and then other more expensive plans will provide coverage through retirement. Its important to look at all the options and utilize adequate insurance as part of your overall plan.
While waiting for coverage (if available), your first line of defense should be emergency reserves. We recommend between 4 – 8 months of emergency reserves be saved where possible. This money will give you a little flexibility to pay a few bills while you figure out what's next.
When deciding whether you need an individual policy or whether to use your employer offered plan, (not all employers offer plans) it’s a good idea to think about the likelihood that you will be with one employer long term or whether you are likely to change jobs more often. Sometimes it's beyond your control. Layoffs and shut downs are beyond your control and sometimes just bad luck. Overall affordability will play into your decision as well. We recognize there are a lot of priorities competing for your money.
This blog is not meant to provide an exhaustive education on disability insurance, but to provide a baseline recognition of the need for a plan for disability. Insurance planning is part of an overall financial plan and it's important to make sure you and your family are properly taken care of.
If you have further questions and want to lean more about your options, we are here to help.