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From the checklist for personal finance, I am going to pick up and continue with the second item on the prioritized list – Disability Insurance.
As I mentioned before, I would prefer to write about investing than disability insurance. However, I have gotta plow through this one objectively to make justice to personal finance.
Do you have auto insurance? If you drive a car, you would say, “Duh, I do”. Everyone understands the need for auto insurance.
The answer is simple and very logical – if you were todie today, life insurance would pay out to the beneficiary you have listed. The objective of the life insurance is to help your beneficiaries maintain the same standard of living after your death.
If you get disabled today due to an illness or an injury, you have created two problems – (1) you are no longer the provider (2) you become dependent on your dependents. You are not earning a paycheck to provide, and your dependents now need to bear the burden of providing for you.
Case closed – now you know why disability insurance has a higher priority than life insurance.
There several reputed websites like, Council for Disability Awareness, National Safety Council, and Social Security Administration that share national statistics on disability.
Majority of the short term and long term disability incidents are non work related. Most Americans don’t have adequate coverage either for short term or long term disability.
What Is Disability Insurance?
Do you earn a paycheck? If yes, disability insurance is an insurance for your paycheck.
There are two types – Short Term Disability (STD) Insurance and Long Term Disability (LTD) Insurance.
Both replace a portion of your paycheck.
STD provides income protection for up to three months you are disabled from work.
If you are disabled and unable to return to work for a longer period of time, then LTD provides income protection.
Short Term Disability (STD) Options
Here are some of my thoughts on short term disability insurance alternatives that may be available to you:
Low Cost Coverage through Employer: If you work for a large corporation, chances are they have a really good deal for you – you just pay a few dollars per paycheck and you get STD coverage.
Workers Compensation: If you are injured or ill and is work related, you might be able to rely on workers compensation to provide a partial portion of your salary. All states in the US require employers to provide some level of workers compensation coverage.
State Coverage: Some states like New Jersey and California provide short term disability coverage for up to six months. You pretty much pay for it in your state income taxes. If you live in a state that provides short term disability coverage, you may not need to purchase it. Check if your state provides short term disability coverage.
Private STD Disability Insurance: You could go out in the market and shop around for short term disability insurance. It will most likely be expensive and I don’t recommend this route.
Emergency Funds: If you have an emergency fund with cash reserves in savings account that could cover six months of your living expenses, you could use that for coverage during your short term disability period.
Long Term Disability (LTD) Options
I place more importance to long term disability insurance than STD insurance.
According to Council for Disability Awareness:
“Accidents are NOT usually the culprit. Back injuries, cancer, heart disease and other illnesses cause the majority of long-term absences.
Are you prepared if it happens to you? Probably not. If you’re like most Americans, you don’t have disability insurance. Or enough emergency savings to last 34.6 months. Yes, that’s the duration of the average long-term disability claim.”
Here are some of my thoughts on long term disability insurance alternatives that may be available to you
Low Cost Coverage through Employer: If you work for a large corporation, chances are they have a really good deal for you – you just pay a few dollars per paycheck and you get LTD coverage.
Workers Compensation: If you are injured or ill and is work related, you might be able to rely on workers compensation to provide a partial portion of your salary. All states in the US require employers to provide some level of workers compensation coverage. If your illness or injury is not work related, you will not qualify for this.
Private LTD Disability Insurance: You could go out in the market and shop around through a site like PolicyGenius for long term disability insurance. You can receive fairly accurate quotes within 5 minutes. LTD Insurance is very affordable and I recommend you to get it if you don’t have LTD insurance.
One of the main reasons for bankruptcies and home foreclosures is due to people getting disabled and becoming unable to meet the financial commitments undertaken. Do you have adequate short-term and long-term disability insurance?
I am not an insurance agent. Thoughts and opinions are my own. Please consult a professional and in determining your insurance needs.