Disability Insurance – A Must Have
Fiscal Fitness- By John Gill
As many of us move about our days we focus on the activities that are before us. Because so many of our lives are filled with many responsibilities we tend to underestimate the impact of what does not appear to be typical or necessary. For example, a large number of people fail to consider the consequences of becoming disabled, especially the financial consequences. While a number of people can purchase disability insurance through employer plans, many will not because they fail to consider the possibility of becoming incapacitated.
One of the misconceptions about the need for disability insurance is that there is some devastating accident which triggers the insurance and the associated disability payments. In reality, most of the time it is a medical issue that triggers a disability. According to Unum, the leading long-term disability insurance company by market share, most (90%), long-term disability claims are for illnesses, not accidents. The primary cause of disability is chronic disease — cardiovascular, musculoskeletal problems and cancer are leading diagnoses — rather than work-related mishaps or non-workplace accidents, according to a 2007 study for the Life and Health Insurance Foundation for Education, a nonprofit organization that informs the public about insurance needs.
Disability insurance protects an individual’s income against the risk that a disability will prevent them from working. Disability insurance can almost be thought of as living life insurance. I say this because, if you remember from past columns, life insurance really protects the covered person’s income for the remaining family members when the covered person dies. Disability insurance provides that income while the covered person is living and still has income requirements and needs while being incapacitated.
In 2011, the Social Security Administration estimated that a 20-year-old had a 30% chance of being disabled for at least six months before retirement. Another misconception is that disabling injuries happen primarily to older individuals. This is not true. According to Unum, 41% of their long-term disability recipients over the 2009-2012 time period were younger than 50, with a third of those under 40.
There are two types of disability coverage, short-term and long-term. Short-term coverage is often provided in employer group insurance plans and covers the first part of a disability situation. The coverage may provide income from a week up to a year or two, depending on the policy.
Long-term insurance begins when the short-term coverage ends and helps to replace income between two or five years or when the disabled person retires. The plans pay up to 70% of the covered individual’s salary depending upon the coverage selected and the structure of the plan.
Most disability insurance is bought through employer-sponsored plans although individual plans can be purchased. Individual plans are much more expensive than group employer plans.
If disability insurance is an option, I would strongly recommend purchasing the coverage. If your employer does not offer disability coverage in their plan, consider an individual plan. The cost/benefit must be considered, but the peace of mind gained will be an added bonus to your continued fiscal fitness.
If you have questions, comments, or an area of financial interest you would like to see discussed in The Park Press please call John at 407-353-0594 or send email to FiscalFitness@ymail.com.by