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Think you don't need disability insurance? If so, this article is for you.
Every working age person today is at risk for a disability. You may be the picture of health and physically fit, but a serious accident can happen to anyone at any time. If you were disabled and couldn't work, your financial security would be at risk. Statistics show that today roughly half of all home foreclosures are due to a disability, and about a quarter of all bankruptcies result from an illness or injury.
Here are five good reasons why disability income protection should be at the top of your insurance list.
1. Disability happens more often than you think, even to younger people. The facts: 30% of all people between 35 and 65 will have an illness or accident that keeps them out of work for three months or more. About one in seven can expect to become disabled for five years or more. It might be a fall from a ladder, a car accident, a workplace mishap, a problem pregnancy, or arthritis or diabetes. And since nearly 60% of injuries happen off the job, it means they aren't covered by workers' compensation.
2. Your employee benefits at work may not cover disability. In a recent survey, one-third of employees believed that workers' compensation and disability insurance were the same, but they're definitely not. Also, 64% believed their medical insurance covered disabilities, but it usually doesn't. Health insurance will cover medical costs, but it doesn't replace income if you're disabled and can't work.
3. You can't count on your savings and investments. Most people don't realize that their savings can be depleted very quickly during a disability. Statistics show that one-quarter of U.S. households currently have net assets of less than $10,000. If you decide to withdraw your retirement savings to pay for living expenses during a disability, you'll also have to pay stiff penalties, compounding your financial problems.
4. Social Security doesn't always pay. Although Social Security Disability Income (SSDI) benefits are available, it's tough to qualify and you often have a long wait before you can begin collecting. 70% of those who apply are denied the first time. If you are approved, benefits usually won't cover all your expenses. Here are two examples: a 30-year old single employee making $60,000 receives an average of $1,600 a month in SSDI benefits. The monthly benefit for a 50-year old married employee making $100,000 a year is $2,700. In both cases, the benefit amount is less than a third of the employee's previous income.
5. You can't always rely on your spouse's income. If you're single, you definitely can't. But even if you're married, a disability can mean additional expenses for the family. One spouse's disability can greatly reduce the other's earning power, and living on one reduced income can be a real challenge when you're used to living on two.
So what's the solution? If your employer doesn't offer disability income protection insurance at work, ask your insurance agent about policies for individuals. You'll typically pay between 1% and 3% of your annual income for the premium. Even if your employer offers coverage, most company-provided disability plans replace only 60% of income. In addition, the benefits are taxable, further reducing your income. That's why it's smart to purchase a supplemental policy.
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