More than 1 in 4 people will become disabled before they retire, but it's not accidents that will likely be the cause of the disability. Instead, back injuries, cancer, heart disease, and other ailments are more likely to lead to long-term job absences, according to the Council for Disability Awareness.
That's why you should think seriously about disability insurance even if you don't work in a physical job. Disability insurance replaces part of your income if you can't work because of an injury or illness.
Experts suggest everyone should at least consider disability insurance as part of an overall long-term financial strategy. Where do you get disability insurance?
How to get disability insurance
You can get disability insurance plans three ways:
- Individual policies that you purchase on your own
- Group plans that you purchase through an employer or organization
- Employer-sponsored group that your employer pays all or part of the premiums
The three types of disability insurance plans vary significantly by rates. Insurers base individual rates on your age, sex, job, and salary potential:
- An individual policy may cost between 1 and 3 percent of your annual income.
- Group policies cost about 1 percent.
- Employer-sponsored plans are usually the most affordable and cost about 0.5 percent, but they are taxed.
Each of the plans has benefits and drawbacks. The plans typically replace 40 to 60 percent of your income, but they frequently have income caps, and you might only get reimbursed a limited amount. You'll want to check about income caps and reimbursement limits on your plans. If you're a higher earner, you might exceed the cap, so it's a smart idea to explore supplemental disability insurance to help provide extra funding in case you become disabled.
A benefit of the individual disability insurance policy is you take it with you when you leave your job, which is not the case with employer-based plans.
Group plans, including ones through professional organizations, are usually cheaper than individual policies because you're buying a policy with a group of other people. However, since the group plan is connected to an organization or employer, you will lose it if you leave your job or organization.
Employers, especially large companies, may offer both short-term disability and long-term disability options. Short-term will pay you a percentage of your income for a few months. Long-term often pays 40 to 60 percent of your base salary for a longer time. Your employer may offer a chance to build on that coverage to give you more funding if you become disabled.
In addition to these plans, you may get help from the government through workers' compensation or a state disability insurance program depending on your injury. It's important to remember that the vast majority of disability claims have nothing to do with on-the-job injuries. The National Safety Council estimates that 73 percent of long-term disabilities are not work-related, so you won't qualify for workers' compensation.
How much disability insurance do you need?
Start by figuring out annual income. Disability insurance is meant to keep enough flowing into your household if you're disabled and unable to work, so it's important to examine your income and determine how much you will need for regular income, as well as for retirement, future living expenses, and children's education expenses.
One way to figure out how much you may need is to plug in your information into the Life Happens calculator. The tool estimates what income you will need to maintain your standard of living if you become disabled.
When you figure out what you can get from disability insurance, combine that amount to your partner's salary to see if you would have enough to survive and plan for the future in the event you become disabled and can't work.
If you find you won't have enough between your spouse and your disability plan, experts suggest you and your partner may want to purchase individual disability insurance policies.
When does your disability insurance kick in?
Insurance companies have different policies as to when plans begin to pay disability payments.
Disability coverage has a grace period called the "elimination period" that is the period immediately after you become disabled. The insurance company doesn't begin paying you until the elimination period is over. This period is typically 90 days, but ranges from one month to a year depending on the policy. You'll want to know this before signing up with an insurer.
The benefit of going with a longer elimination period is that the policies are cheaper. That might work for you if you have a large nest egg you can tap into before the elimination period ends. If you live paycheck-to-paycheck or don't have much savings, you will likely want to pay a higher premium, so you know you'll have to wait a shorter time before the insurer stays paying you.
Is disability insurance right for you?
As we said earlier, your type of job likely won't result in whether you need disability insurance in the future. If you work with heavy machinery, there's a better shot of you hurting your back than if you work an office job, but there's no guarantee. Plus, the vast majority of disability insurance claims come because of non-work-related injuries and illnesses.
If you decide you decide to pursue disability insurance, you want to check with your employer to see its offerings. Also, check with your organizations to see what they provide. Remember, with these types of plans, you lose coverage if you leave the employer or group.
You'll also want to check into individual plans. The benefits of individual plans are that they belong to you, so you can take it with you when you leave your job.
Regardless of what avenue you take, it's always a great idea to shop around to find the disability insurance plan that's right for you and your situation.