The Long & Short of It: Disability Insurance and Why You Might Need It

It’s not something the majority of us think about (or even want to think about) but the facts are there. According to the Council for Disability Awareness, 1 in 4 of today’s 20-year-olds will become disabled before they retire. Accidents and illnesses such as cancer or heart disease cause millions of Americans to lose their ability to work and support their families.

The stress of disability is compounded by more than physical pain – far too often people must confront a new, and frightening, financial future. Voluntary long- and short-term disability insurance is one step you can take to safeguard your finances from the unimaginable.

Long-term Disability

On average, long-term plans will typically cover 50 to 70 percent of a person’s lost wages. If you work fulltime, there’s a good chance that your company offers long-term disability coverage. Often, a group plan means an employer is able to spread out the costs of this type of insurance and will cover half or more and deduct the premium from employees’ paychecks. Some companies pay the entire cost for their employees.

Speak with your HR department to find out:

  • How long you must be employed before you qualify for long-term coverage.
  • When long-term coverage would kick in (typically 60 to 90 days after your injury or illness).
  • If there are limitations to how long your disability coverage will last. Some plans will only yield five or 10 years of coverage or until you’re eligible for social security benefits.

If your employer doesn’t offer long-term disability insurance, the good news is that individual plans are fairly inexpensive (depending on your age and occupation) and can be purchased from a broker, who will explain the rules and limitations of your plan.

Short-term Disability

Short-term disability coverage isn’t offered as regularly as its long-term counterpart due to high premiums for both companies and individuals. However, the limitations, such as how long you must carry the insurance before you can use its benefits or how long you must be employed to qualify are often similar. Again, speak with your HR department or a broker for an explanation of the fine print.

Short-term disability insurance normally covers a percentage of lost income for up to six months and may be a smart option for people:

  • With known physical or mental health issues.
  • Who participate in high-risk activities (talking to you, skydivers).
  • Who have long commutes to and from work.

Another group that benefits from short-term disability coverage is women who are planning to become pregnant. If your company doesn’t offer maternity leave or benefits, the supplementary income from short-term disability insurance could provide a much-needed windfall during a very expensive part of life.

Lastly, disability insurance may be a smart, gradual option for those without an emergency fund. Small premium payments can add up to a large cost-saving benefit in the long run. However, having disability insurance is not an excuse to avoid creating emergency funds. Even if you don’t use it for health-related expenses, building up a nest egg can keep you and your family on firm financial footing.

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