Is Disability Insurance Right for You?
Whether you need disability insurance (and what kind) depends on your circumstances. Here are some points to consider.
You may already have health insurance that covers medical costs when you get sick or hurt and have to go to the doctor's office, urgent care center, or emergency room. Disability insurance is different. This covers you if you're unable to work because of a sickness or injury. Rather than covering medical costs, it covers your everyday living costs, such as bills and groceries.
Disability insurance can be a backup plan in case something happens that renders you unable to do your job. You don’t know when that might happen -- it could be anything from a car accident to a herniated disk. If you're not covered, and you miss work for an extended period of time, your financial situation may start to look bleak really quickly.
Types of disability insurance
The Social Security system offers disability benefits1, but aside from that, there are two kinds of disability insurance you can purchase: long-term and short-term. The former may last for the rest of your life, depending on your policy. Policies may cover you for periods of two years, five years, 10 years, until you turn 65, etc. The price goes up depending on the length of coverage. Short-term, on the other hand, will typically cover you for a matter of months. Policies may include periods of three months, six months, or a year.2
While either type may be offered by an employer, short-term is far more likely to be offered as a benefit, thanks to group plans. Individual plans can get quite pricey, so having the insurance is typically much more attractive when your employer offers it.
Short-term disability insurance is often a more attractive option than paying for long-term coverage, since most incidents that qualify for coverage result only in what would be considered short-term disabilities. If the disability ends up lasting for a longer length of time, and you have short-term insurance, you can still apply for long-term coverage.
"Whether or not you need long-term disability or short-term disability will depend heavily upon your circumstances," suggests Kevin Mercadante at Term Life Insurance Saver.3 "For example, if you’re self-employed, and can run your business in some capacity even if you have physical limitations, you may only need short-term coverage. The size of your asset base is also an important consideration. If you have sufficient savings and investments for the rest of your life, or at least until you reach the age of retirement, a short-term disability policy will get the job done. Non-employment-related sources of income is yet another consideration."
Do you really need either type of disability insurance?
Ultimately, only you can decide if you truly need disability insurance. You have to weigh the risks versus the type of job you have. If your job requires a great deal of manual labor, for example, more types of issues may keep you from working than if you can do your job at home on a computer while lying in bed.
Money Talks News founder Stacy Johnson says, "I personally have never had disability [coverage]. Why? Several reasons. I’m healthy and come from a healthy family. I work in an office environment, so I’m not likely to get injured. I have a lot in savings I could rely on should something happen. My wife also brings in a good income, and we don’t have kids. These are reasons I’ve never had disability insurance. But even if you’re in the same situation, that doesn’t mean you shouldn’t purchase this coverage. If losing your income could cripple your family, or if you can get insurance cheaply through your employer, it might be worth considering."4
The reality is that you never know what life will throw at you. Maintaining a healthy emergency fund is a good way to help prepare yourself, but disability insurance can be another way to deal with whatever the future holds. It's at least worth exploring your options.
1. For more information, visit https://www.ssa.gov/disability/
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A. Member FDIC