Disability Insurance

This policy protects you against the unfortunate event that an illness, injury or condition prevents you from being able to work. This includes protection from both physical and psychological conditions that could prevent you from working at full capacity and you lose your income.

While having a career-changing event may seem unlikely, the Council of Disability Awareness states that the average American female worker has a 1 in 4 chance and the average American male worker has a 1 in 5 chance of becoming disabled for 3 months or longer during his or her working career.¹

Disability insurance ensures a steady stream of income for you and your family in case illness or injury prevents you from earning money. You owe it to you and your family to protect your paycheck from life-changing illness or injury.

1. Council for Disability Awareness, Personal Disability Quotient (PDQ) calculator (http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp)

Who should purchase Disability Insurance?

You should seriously consider purchasing disability insurance if you are employed and:

• Are the main or sole source of income for your family
• Live from paycheck to paycheck
• Do not have significant savings to support oneself and/or family for an extended period of time
• Have to make monthly payments on home mortgages, car loans, etc. and would not be able to without income from your job

You probably do not need disability insurance if you are employed and:

• Have a spouse whose income you could rely on if you became unemployed
• Have parents/family who will financially support you should you become unemployed
• Have significant savings that could hold you over financially while you recover and seek re-employment

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Why can’t I just rely solely on disability insurance/worker’s compensation from my employer or Social Security?

Problems with relying on disability plans from employers, Social Security, and worker’s compensation:

• Employer disability plans may only cover up to 60% of your salary
• Disability plans only apply to base salary (does not include salary from bonuses/commission)
• Monthly payments are generally capped at $5,000 per month, which may be less than 60% of your salary
• Some plans may only cover catastrophic events and accidents, but not disabling illnesses
• Social Security disability plans pay out on average only $1,100 per month, much less than average monthly expenses for most people²
• Worker’s compensation only covers work related accidents and illnesses, but less than 5% of disabling accidents and illnesses are actually work related thus 95% of disabling events are not covered³

2. U.S. Social Security Administration, Disabled Worker Beneficiary Data, December 2012

3. Council for Disability Awareness, Long-Term Disability Claims Review, 2012

How do the benefits work?

Disability insurance could replace 45% to 65% of an individual’s income, and can be supplemental to a disability plan received through an employer/worker’s compensation.

Plans specify an elimination period, which is the length of time (30 to 90 days) that you will need to be out of work before benefits can be collected.

Plans also specify the benefit period, which is the amount of time that you can collect your benefits. Can be a set amount of time (usually months to years), until age 65, until retirement age, or another set period of time.

What is the difference between short- and long-term disability insurance?

Short-term disability insurance typically covers an individual for three months.

Depending on the policy, long-term disability insurance may usually begin paying out benefits after the short-term period ends and has a benefit period of 2-10 years or until a certain age.

How much does Disability Insurance cost?

The cost of a disability insurance depends on multiple factors:

• Your age and health. The younger and healthier you are, the less you will pay in premiums.
• The type of occupation you have, high-risk occupations will pay higher premiums
• Amount of income that you make, the larger your salary the higher your monthly premium.
• Shorter elimination periods or a longer benefit periods increase monthly premium costs
• Type of policy (short-term vs. long-term), a long-term policy will have higher monthly premiums
• Type of disability covered (accidents only vs. accidents + illness), the broader the coverage the more expensive the monthly premium

Having major health issues may prevent you from purchasing disability insurance or make it unrealistically expensive.

When should I buy disability insurance?

The sooner you purchase disability insurance the better:

• Debilitating illness and injuries can occur at any age, at which point it would be too late to purchase disability insurance
• Premiums only increase the more you age

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