If you become disabled what happens to your income?

Car Accident, Complicated pregnancy, Cancer, Stroke, Back Injury. What will happen to your income if you become disabled? Nearly 50% of all individuals 35 or younger will be disabled for 90 days or longer prior to age 65. Approximately 30% of all people age 35 - 65 will suffer a disability for at least 90 days, and about 1 in 7 can expect to become disabled for 5 years or more.

Have you ever had a friend or family member come down with health issues or are in an accident that left them unable to work for months (or even years) at a time? It’s hard watching loved ones struggling to make ends meet when life throws a curveball. And it’s even harder to imagine if it were you and your family. What would happen if you lost your income? It would probably be stressful if not devastating. The good news is, you can patch up this hole in your financial safety net with long-term disability insurance.

What Is Disability Insurance?

Basically, disability insurance covers part of your income if something happens to you (like an illness or injury) and you can’t work. The younger and healthier you are, the easier it is to qualify for a policy. But the older you get, premiums increase. And if your health goes south, you may find it hard to qualify at all and if you do your premium may be substantially higher. Disability insurance doesn’t just cover freak accidents. Most claims are for things you may not realize are considered disabilities, like physical injuries, a heart attack, or cancer.

Are you one of those that think it will never happen to you? Think again. The Social Security Administration (SSA) reports that one in four of today’s 20-year-olds will become disabled for 90 days or more before they turn 67 years old—and that a massive 68% of non-government workers have no disability insurance.

How much better would you feel knowing money is still coming in while you’re recovering? Or God forbid if you become permanently disabled that you don't have to consume all of your savings or rely on the minimal amount that SSDI will provide.​

What Are the Types of Disability Insurance?

There are two types of disability insurance you’ll see, short-term and long-term. They basically do the same thing in how they replace part of your monthly salary. But we’ll get more into that later. Even though they do the same thing, short-term and long-term disability insurance have some differences you need to know about. Here’s how they stack up:

Long-Term Disability Insurance

How long is long-term coverage? Anything over two years and up until retirement age is considered a long-term policy (but some carriers allow you to extend it into retirement age). And whether you’re working behind a desk or a construction site, you’ll want something in place until you turn 65. We recommend getting as much coverage as you can—around 60–70% of your income. If you take out your own policy, it will stay with you whenever you change jobs (Filing a claim will require proof of an employment income to replace.. But it’s cheaper if you can buy it through your employer. ) Talk to your company's human resources department about setting it up. When you look at the numbers, long-term disability insurance really is your best option. We recommend getting coverage for at least 5 years or more, to cover long-term loss of income that your 3-6 month emergency fund won’t cover. The only downside to long-term coverage is the elimination period (how long you have to wait before that first check arrives after the doctor confirms you’re disabled). Because long-term disability is designed to kick in after short-term disability, there is usually an elimination period of several months. You can request for your policy to have anywhere from 0, 30, 60, 90, 180, and 365 days as your elimination period but remember the shorter the elimination period the more costly the premium will be. Most people pick a 90 day elimination period because they have enough set aside in savings that they can survive for 90 days without an income. 90 Days also tends to be the most cost-effective. The average time it takes to process a long-term claim is around 90 days.

Short-Term Disability Insurance

Short-term disability insurance is exactly that: short. Payments only last for a few months to a year. The elimination period is normally around two weeks—so you can get your payout faster than with long-term coverage. But when it comes to cost, short-term premiums are around the same (but usually more expensive) than long-term premiums. Basically, unless your employer is offering short-term coverage free of charge to you, don’t get it. You can put together your own short-term disability coverage by saving 3–6 months of expenses in an emergency savings account! If you get sick or injured and have to take time off work for a few months, your savings can fill in the gaps until you get back to normal. And if you don't ever need it you have a nice nest egg. Don't forget you "may" qualify for California's, EDD, short-term disability that you pay for every month in your payroll/paycheck taxes. Rember however that you only get paid a small percentage of your income, you have to have contributed for a certain period of time in order to qualify, and it only lasts for a short period of time depending on how much you have contributed to the fund.

How Much Does Disability Insurance Cost?

Disability insurance costs (aka premiums) for both short-term and long-term coverage can range from 1% to 3% of your annual income. So if you make $50,000 a year, that’s $60 to $125 monthly. But you’ll pay less if you get a long-term policy with a longer elimination period. If you can, get a “non-cancellable insurance policy” that, you guessed it, can’t be canceled by the insurance company even if your health changes. Other things that have a bearing on premiums every month are your age, if you smoke, what you do for a living, and how much money you make. (Because if you earn a lot, it’s going to cost more because your monthly payment award needs to be more.) And since insurance companies aren’t known for making things easy, another thing that impacts disability insurance cost is their definition of disability. If you want a policy that covers your job as a chimney sweep specifically, your premium would cost more compared to a policy that covers you at an office job.

Who Needs Disability Insurance?

Anyone and everyone should have long-term disability insurance regardless of whether you’re a secretary or an underwater welder. The reality is, you’re more likely to become disabled while working with heavy equipment or machinery than you are sitting at a computer all day, but don’t let that stop you from protecting your income. Disability policies cover you while you are at work, at home, shopping, or even out water skiing. Be aware if you're in a risky job such as a firefighter, policeman, or underwater welder, you're going to see higher disability insurance premiums in comparison to those of a secretary. Fortunately, disability insurance is a common benefit offered by employers if you have a high-risk job. Just remember: disability insurance isn’t there to make you rich! It’s there to pay the bills and put food on the table if something happens to you.

What Isn’t Covered by Disability Insurance?

Always read your policy, every company and policy can be different but they do all have the same basics. Disability insurance is only designed to replace a portion of your income -- it doesn’t cover extra expenses like your medical bills and long-term care costs. While pregnancy isn’t usually covered by long-term policies, complications that extend beyond pregnancy (like if a doctor orders you to stay at home after a C-section) might qualify you for benefits—but only if you had a long-term policy in place before you got pregnant. Short-term policies do cover birth as a disability, but you might be waiting long six-to-eight weeks for each check. Each policy does have certain types of medical situations that may have limitations on the length of time they will pay you for, so make sure you check the verbiage of your policy.

I hope that helps explain a little about Disability Insurance. Click on the disability tab above, complete the form and we will provide you with some income replacement options.