Life insurance is a crucial purchase for anyone with a family or significant other, but disability insurance is commonly overlooked. Despite this, disability insurance may be even more important since a disability could mean long-term loss of income. Life insurance is meant to take care of your loved ones should something happen to you, while disability insurance is about being able to bridge the income gap during recovery from an injury or accident. Keep reading to learn everything you need to know about disability insurance.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
What Is Disability Insurance?
Disability insurance is a type of policy that replaces a certain percentage of your income should you suffer an injury, illness, or another form of malady that prevents you from working your normal hours. Disability insurance usually brings to mind frightening images of gruesome accidents, but that’s rarely the situation in most cases. A paralyzing injury or brain trauma is rare, but broken bones, serious illnesses, and other non-life-threatening injuries can still leave a person unable to work.
For example, a broken index finger might sound like a minor nuisance instead of a major injury. But what if your job requires manual dexterity for manipulating tools, typing on a computer, or using heavy machinery? Your minor injury might render you unable to fulfill your employment requirements. Plus, even if you get your cast off in 6 weeks, that could be 6 weeks where you’re stuck without a paycheck.
If you have disability insurance, you can sleep well knowing that a good chunk of your paycheck will be covered under your policy. Some estimates say that 30% of all workers will need to miss at least 90 days of work in their lifetime for some type of injury or illness. In addition, many of these concerns aren’t acute injuries, but wear-and-tear type wounds affecting joints, knees, hips, and the spine.
Long-Term vs Short-Term Disability Insurance
Disability insurance is sold in many different packages, but the two overarching forms are long-term insurance and short-term insurance. Each policy has a waiting period before benefits can be used and certain caps on the income replaced, but there are some other key differences to explore.
Short-Term Disability
Here are the characteristics of short-term disability insurance:
- Coverage periods are shorter than long-term policies, usually lasting anywhere from a few months to a full-year
- Shorter duration elimination period, usually 14 days or less
- Covers non-chronic illnesses, injuries, and childbirth
- Replaces about 60% to 70% of income
- Expensive to purchase on its own but usually can be bought through an employer in a group plan
Long-Term Disability
Here are the characteristics of long-term disability insurance:
- Coverage periods last longer than 1 year and can be as long as 10 years
- The elimination period while waiting for benefits is longer, usually 60 to 90 days
- Covers chronic illnesses like cancer and heart disease, acute events like strokes and heart attacks, mental disorders, and musculoskeletal conditions affecting the back, spine, knees, or other areas with connective tissue
- Replaces about 40% to 60% of income
- Policy lengths make coverage levels cheaper than short-term insurance
What Type of Disability Insurance is Right for Me?
Everyone likes to think the bad things won’t happen to them, especially young folks. But the stats tell a different story, and about 25% of all employees can expect to miss extended work for some type of injury or illness.
Short-term disability insurance usually costs around the same as long-term insurance, but that means a lot less bang for your buck when it comes to policy benefits. Some type of disability insurance is a must for most employees, but short-term insurance might not be needed if you have sufficient emergency savings or other funds to tap. If you break your wrist but have 3 months of income saved up, you probably can get by without short-term disability.
However, long-term disability insurance can be a literal lifeline should some injury or illness befall you and the recovery time is lengthy. If you have questions about which type of disability insurance is best for you, be sure to consult your financial advisor. Your advisor can help devise a list of questions to ask insurance providers to best determine the proper insurance type and policy options.
Work With an Experienced Financial Advisor
This is everything you need to know about disability insurance. If you have any remaining questions, reach out to a team member from Good Life Financial Advisors of Mount Pleasant today.
Disclosure
This material only contains general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice.