States require us to purchase auto insurance. Banks make certain we have mortgage insurance. Parents with children buy life insurance to protect their families in case of an unexpected death.
Yet, despite the fact that research shows we are much more likely to become disabled for more than three months than die in any given year, many of us do not have disability insurance.
By Linda Grant
- Seventy-five percent of disabilities result from illness, not accidents.
- Financial crises associated with disability are the leading cause of personal bankruptcies and responsible for nearly 50 percent of mortgage foreclosures.
- One in three women and one in four men will be out of work for 90 days or more at some point during their working lifetime due to disability.
Ask yourself, “Can I afford to be without disability insurance?” If you think of a disability policy as insuring against loss of income, you are more likely to view it as a necessity. Nine out of 10 Americans who have disability coverage are insured through their employers. Employers can provide two types of disability insurance: short-term (STD) and long-term (LTD). Short-term disability insurance is generally limited to between 60 and 180 days (although some might last up to a year) and typically pays 60 percent to 80 percent of your gross salary. Most plans begin paying benefits after you provide written documentation from a physician of your condition and estimated time away from work. You might also have to wait up to 20 days between the date you stop working and the date your benefits begin. Some employers might require you to use up your sick leave before your disability benefits begin.
A long-term disability policy begins if short-term disability ends before you can return to work. Some employer STD plans automatically convert to long-term disability. Check the terms of your employer’s plan closely.
If you work for an employer that does not offer short-term or long-term disability insurance, consider purchasing an individual LTD plan. Individual long-term policies are extremely customizable, so consider the following before your purchase:
Determine how much you spend monthly on necessities such as housing, food, utilities, child care, transportation and other living expenses. Don’t forget the premium payments for your LTD plan and added medical costs. Aim for a plan that will cover these expenses. Factor in your spouse’s income and an emergency fund if you have one.
Decide how long you want the benefits period to last. The longer the benefits period, the higher your premium payment. For LTD, it can range from a set number of years — such as two to five years — or until a certain age, usually 65.
Consider making the policy “non-cancelable and guaranteed renewable.” These protections guarantee that once a policy is in-force, there will be no changes to your premium schedule, your monthly benefits or your policy benefits during the life of the policy as long as the premiums are paid. This can be critical when you are already living on a reduced income. Guaranteed renewable by itself only provides that your insurance cannot be dropped; the premium can still be increased.
Pay attention to payout restrictions for behavioral health conditions, pre-existing conditions or family medical history.
Know whether you are required to coordinate with government benefits, such as those available from the Veterans Administration or Social Security.
If you will be on extended leave, you can apply for Social Security Disability Insurance (SSDI). SSDI pays benefits to people who cannot work due to a medical condition that is expected to last at least one year or result in death. SSDI is not available for partial disability or short-term disability. Apply as soon as possible; waiting to apply might result in an income gap while your SSDI claim is processed. Click here for more information on applying for SSDI.
Finally, be sure to read the fine print on your disability policy. Become familiar with it before you need it and before you are distracted with managing your disability. Many conditions can result in a long-term absence from work. Disability insurance can allow your family to tend to your recovery without the burden of worrying about paying the bills.
Linda Grant is Relationship Manager at MMBB Financial Services. She is the liaison between MMBB and disability and health insurance vendors and has extensive experience coordinating disability and health insurance administration.