It can happen in an instant: you’re powering through life, excelling at your career, perhaps raising a family. And then a car accident or other sudden injury sidelines you. At first, you might be OK, living off of savings or paid leave. But if your disability is a long-term one, you might quickly burn through your savings. Then what? Disability insurance fills in the gaps, offering significant peace of mind to people concerned about the disastrous effects of a disability on their family and earning power.
Disability insurance is an extra expense, and finding the right policy can be a hassle. So, is it worth your time and money? Here’s how to decide.
What Does the Policy Offer?
It’s easy to sign on the dotted line of a long-term disability insurance policy and hope for the best. But what are you really getting? Before you invest in any policy, ask lots of questions:
- What is the benefit amount? This is how much you’ll be paid each month.
- What is the benefit period? This is how long you’ll receive benefits.
- Can your policy be canceled? Is renewal guaranteed?
- What are the terms of coverage? Some policies will only cover you if you can’t get a job anywhere—not if you’re injured such that you’re unable to work in your chosen profession.
- What is the elimination period? This is how long you must be disabled before benefits kick in. Make sure this period is not longer than your savings will last.
What Can You Expect From Government Programs?
It’s unwise to rely on government programs if you become disabled. But if you’re unable to afford long-term disability insurance right now, consider how government programs may be able to help you. There are two primary options:
- Supplemental Security Income (SSI) is a need-based program given to people with very low income and little or no savings. People who receive SSI are also eligible for Medicaid. Benefits are fairly low, but may be sufficient to cover basic expenses.
- Social Security Disability Insurance (SSDI), much like Social Security retirement payments, are payroll-based. SSDI eligibility is based on a previous history of employment. You’ll have to wait five months following an injury to be eligible, which means you’ll need at least five months of savings.
What Risk Does a Long-Term Disability Pose?
Some people are at a greater risk of long-term disability. If you work in a high-risk occupation, such as construction, it may be more important to invest in long-term disability insurance. Likewise, some people stand to lose more from a long-term disability. A policy is more important to consider if:
- You are self-employed
- You are the primary or sole breadwinner in your family
- You have young children
- You have few assets, or no other independent way to cover expenses in the event of a disability
- You have high debt
- You own your own business
Are You Choosing the Right Policy?
Once you’ve decided to invest in a policy and shopped around for a good fit, you’ll need to consider if you’ve chosen the right policy with the right company. Some factors to consider include:
- The financial health of the insurer, and how long they have been around
- Whether the agent who referred you is independent, or has an interest in selling you a specific policy
- Whether the policy can cover at least 60% of your previous income level
And finally, always seek the opinion of an attorney you trust before investing in a policy. Once you sign, you’re wedded to the policy, so read it carefully and get a second opinion if you have any doubts.
Kara Perez is the original founder of From Frugal To Free. She is a money expert, speaker and founder of Bravely Go, a feminist financial education company. Her work has been featured on NPR, Business Insider, Forbes, and Elite Daily.