Disability insurance enables you to have financial assistance if you, due to illness or injury, are unable to work for an extended period of time.
How would your life be impacted if you were not able to earn an income for weeks, months or even years? The answer may seem obvious, but your ability to earn an income is possibly your most valuable asset.
While most people see the benefits of having insurance to protect things like their home and car, most people don’t give a second thought to having disability insurance, which protects your ability to earn an income.
What Is Disability Insurance?
Disability insurance will cover a portion of your income if something happens to you and you are unable to work for an extended period of time. You pay for disability insurance while you are healthy and able to work. In the unfortunate scenario where there is an accident or illness that leaves you unable to work, those benefits kick in. Your insurance will pay you so that you can continue to cover all of your financial obligations.
Why Is It Important To Have Disability Insurance?
If you are earning an income that your household relies on, it’s important to have disability insurance so that you can continue to pay your bills and feed your family in the event that you become disabled.
Even though it’s something that most people assume will never happen to them, according to the Social Security Administration “just over 1 in 4 of today’s 20 year-olds will become disabled before reaching age 67.” So making sure that you have insurance in place to help you out financially if it happens to you can really take off a lot of stress and really save you if something were to happen and you couldn’t work.
Having an emergency fund isn’t a replacement for disability insurance unless your emergency fund is pretty significant. Because disability insurance only provides a portion of your income, it’s smart to have both disability insurance as well as a savings account so that you can not only pay your bills but cover any additional costs like medical bills that may come up from whatever event or illness caused you to become disabled.
What Types Of Disability Insurance Are There?
There are two types of disability insurance: long term disability insurance and short term disability insurance. While they are very similar, there are some key differences.
With short term disability insurance, you are covered for a short period of time – usually around 3-6 months. It typically covers around 60% to 70% of your salary and costs between 1% to 3% of your salary.
Long term disability insurance provides a bit less than short term disability by paying you about 40-60% of your salary. It costs a bit less than short term disability insurance but lasts much longer ensuring that you are covered for five years or more. Because it isn't meant to cover short-term disabilities, it also typically won't begin paying benefits until you've been disabled for a few months (the "elimination period").
Whatever type of disability insurance you choose, it’s something to look into if you haven’t already. Disability insurance can remove the stress of worrying about keeping a roof over your head and food on the table if something were to happen that left you disabled by providing you with financial assistance based on your salary.