Hopefully you have health insurance. If you do, you are forgiven for thinking “job done.” But it’s not. Health insurance will not replace your income if you become disabled and are unable to work.
What are the most common disabilities that people experience that cause them to be unable to work? At least one of them isn’t even a “disability” per se. The four most common are: musculoskeletal disorders (i.e. tendonitis, arthritis, etc.), cancer, pregnancy, and mental health issues. According to the Social Security Agency, 25% of 20 year-olds today will experience a disability sometime during their working years. Yes, I am trying to scare you a bit.
Which brings us to disability insurance. Disability insurance replaces a portion of your income if you are unable to work due to an illness or injury. Short term disability can potentially cover you fairly immediately and up to 12 months, depending on the policy. Long term disability kicks in afterwards, and lasts potentially for several years or even until you are 65 years old and eligible for Medicare.
Many people have disability insurance through their employer, so let’s start there. It is low cost, or even free. Unfortunately, employer-based disability insurance is not likely to be adequate for your needs, especially if others depend on your income. Disability policies may replace as little as 40% of your income. It’s not nothing…but realistically, if you were unable to work for an extended period of time, would that be enough? Would your emergency savings be able to carry you through?
Disability insurance that you purchase yourself will cost between 1% and 3% of your gross income. As you can imagine, premium costs vary widely depending on your age, occupation and your current health. The policy will typically replace between 40% and 70% of your income, depending on if it is short term or long term coverage. Again, not 100%, but combined with an employer policy, it may get you where you need to be.
Finally, a word about Social Security Disability Insurance (SSDI). SSDI is a benefit available to anyone who has paid into the Social Security system, usually for at least 10 years. SSDI benefits average $1,234 per month and are available if your disability is of a nature such that you are unable to earn income for more than a year. You can receive SSDI even as you receive benefits from your own disability insurance policy.
I get it. This is even less fun than the decision you had to make about health or life insurance. But do take a moment to consider what would happen if you were unable to work and how you and your family would not just survive…but continue to thrive.