Most people are aware that they need to carry health insurance, auto insurance, and homeowners or renters insurance. Yet what a lot of people don’t realize is that there’s another type of insurance policy that, while not required by law, is equally as important:
Not sure if you need it?
Not sure if it’s worth the cost?
Here are seven reasons why disability insurance is worth it and why you should get it now.
What is Disability Insurance?
Disability insurance is not supplemental health insurance to cover the cost of medical care. It’s actually income insurance.
Disability insurance is sometimes referred to as disability income insurance. This type of policy allows you to collect a portion of your current income when you suffer an illness or injury and cannot work and collect your paycheck.
The cost of disability insurance varies depending on a variety of factors, including how much you want to receive in monthly benefits. Whether you choose a low-cost policy with less benefits or opt for maximum coverage, there are many reasons why disability insurance is well worth the cost.
1. Protect Your Future Unearned Income
If you were injured or became ill tomorrow and had to quit your job, would you be able to pay your bills?
For many people, the answer is no.
Disability insurance allows you to continue to bring in income that you haven’t earned yet, even when you cannot work. Depending on the benefit period you choose, you can collect disability benefits for two years, ten years, twenty years, or all the way up to retirement age.
2. Protect Your Existing Assets
Without continued income, you might have to dip into your savings or sell off assets in order to maintain your current lifestyle. A steady stream of income through disability insurance benefits makes it easier to remain in your current home and maintain your way of life without having to drain your savings or sell investments to keep you afloat.
3. Maintain Stability for Your Family
If you’re one of the income earners in your household, disability insurance allows you to keep your family stable. Benefits typically pay about 60% of your existing paycheck, which is equivalent to what most people bring home after taxes.
4. Avoid Debt and Bankruptcy
In 2021, approximately 66% of people that filed for personal bankruptcy in the U.S. did so because of medical debt.
Disability insurance benefits can be spent on anything, including medical bills, transportation, medications, mortgage payments, and all other types of expenses. Having this stream of income reduces the need to go into debt or rely on credit cards to pay for everyday necessities.
5. Continue to Build a Retirement Fund
Leaving your job as a result of a disability means that you’ll no longer be able to contribute to employer-sponsored retirement plans, such as 401ks and pensions. But since disability benefits can be used to fund any and all expenses, you can use a portion of them to contribute to your own IRA or other retirement investments.
Disabilities can strike anyone at any age. The younger you are and the less you’ve saved for retirement, the more important disability insurance can be.
6. You Can’t Rely on Social Security
Think you can rely on Social Security benefits to provide you with lost income?
Most people cannot.
In 2022, Social Security disability benefits, or SSDI, pay an average of about $1,350 per month, which is only about $313 per week. For most individuals, this isn’t enough.
7. You Can Collect Benefits and Still Work
Every disability insurance policy includes a “definition of disability,” and you must meet the standard of this definition to be eligible to collect benefits.
Selecting the “true own-occupation” definition is always the best definition to choose.
Because you become eligible to collect under this definition as long as your injury prevents you from doing the job you were doing when your injury or illness occurred.
The true own-occupation definition of disability also allows you to work and earn additional income at a different type of job, even while you’re collecting benefits. The only caveat is that the new job must require you to perform different duties than the job you were doing prior to your injury.
Check out this article on disability insurance for physicians to learn more about the true own-occupation definition of disability.
No matter what type of work you do, disability insurance can be a huge benefit, as it allows you to continue to earn income even if an illness or injury makes it impossible for you to work. Without it, you are putting yourself and your family’s financial security at risk.