Do I Really Need Disability Insurance?

From D. Woods

Six Misconceptions About Disability Insurance

What’s your most valuable asset? Your car? Your savings and investment accounts? Your house? It’s actually “none of the above.” Your greatest asset is your ability to earn a living. Think about it—what would become of you and your family if you suddenly became disabled and were no longer able to work? According to America’s Health Insurance Plans, one-third of working adults say their savings would run out in three months or less if their family’s primary wage earner lost his or her income due to a disability.

Disability insurance can play a crucial role in keeping you financially afloat if a disabling illness or injury strikes. But a survey by The Consumer Federation of America and The American Council of Life Insurers found that 82% of people do not have long-term disability insurance or believe their coverage to be inadequate.

And it’s not just those with hazardous jobs who need to worry about becoming disabled: Illness actually keeps many more people out of work than accidents.

For these reasons, the non-for profit LIFE Foundation has put together the following six misconceptions people have regarding disability insurance and the risk of becoming disabled:

1. I am in good health; I won’t become disabled

According to the U.S. Census Bureau, nearly one in five Americans will become disabled for a year or more before the age of 65. An illness or accident that keeps one out of work can be very costly from medical bills, prescriptions and other unforeseen expenses.

2. I’m not in a dangerous line of work

Regardless of your occupation, if you have a job, chances are you need disability insurance. Many people assume disabilities are caused by accidents. However, the National Institute on Disability and Rehabilitation Research reports that only 13% of disabilities stem from injury. The vast majority of disabilities are the result of illness.

3. Worker’s compensation will cover me if I become disabled so I don't need disability insurance

Worker’s compensation only covers you if you are disabled as a result of your job and many worker’s compensation programs follow strict guidelines and pay only limited benefits. Having disability insurance will ensure you are financially stable even if you become disabled outside of work.

4. The benefits I can get through Social Security eliminates my need for disability insurance

Don’t count on it. It is extremely difficult to qualify for Social Security disability benefits. According to the Social Security Administration, in 2003 roughly 70% of those who applied were denied. If you do qualify, it takes five months or longer for benefits to kick in and, on average, pays out just over $800 a month.

5. I don’t need individual disability insurance coverage, because I’m covered through work

Know the specifics of what type of coverage your employer provides. Talk to your company’s benefits or human resources office to find out if the policy covers short or long-term disabilities and the benefit level paid out for claims. If the benefit coverage offered through your company wouldn’t be enough to help you make ends meet in the event of a disability, many companies offer the opportunity to increase coverage through automatic payroll deductions. You can also supplement your company coverage with an individual policy.

6. I’m too young to worry about disability insurance

According to the National Association of Insurance Commissioners, people in their 30’s are three times more likely to become disabled than die. You may have enough money saved to pay the bills for a few months, but what will cover you down the road when the bills are piling up and you’re not receiving a paycheck?

Now that you’ve familiarized yourself with some of the common misconceptions, use LIFE’s Disability Insurance Needs Calculator to help determine if you need private disability insurance. For a more thorough needs analysis, LIFE recommends meeting with a qualified insurance professional.

Questions to Consider when Evaluating Disability Insurance Policies

Asking the following questions will help you evaluate policies when you are considering a purchase:

How does the policy define a disability? Does it cover accidents, partial disabilities or only after a total disability?

If I become disabled, how long do I need to wait until benefits begin?

How much does the policy pay? Is there a monthly maximum?

How long will my payments continue?

Is there an option to buy additional coverage at a later day, without evidence of insurability?

If you are interested in more information about disability insurance please visit LIFE’s Website at www.life-line.org.

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