If you want to be extra cautious, you can insure just about everything in your life: home, auto, health, travel, liability, life — even disability. But whether you believe that “it won’t happen to me” or that you should insure everything, disability insurance is probably at the bottom of your list. After all, most people aren't even sure how disability insurance works.
Maybe it’s a low priority because you think that if you ever become disabled, the government or other programs may step in to help cover your income if you can’t work. People generally think they can rely on things like Social Security, a savings account, or disability coverage through an employer. But these don’t apply to everyone’s circumstances, and when they do, they often don’t pay enough to cover your expenses.
That’s why disability insurance can be the most important insurance you buy; it’s insurance for your paycheck.
If you’re sick or injured and unable to work, you’ll still receive a partial income until you’re able to return.
Other types of insurance pay for specific losses, such as repair costs after your car has been in an accident. Unfortunately, those plans only replace that one thing that they insure. They don’t cover continuous expenses. That’s what disability insurance is for — covering monthly living expenses. If you rely on a regular paycheck to pay your bills, then disability insurance is important to have.
Sixty-five percent of working Americans say that they couldn’t cover normal living expenses for a year if their employment income was lost, and 38 percent couldn’t pay their bills for more than three months, according to a study by the Council for Disability Awareness.
Here are some misconceptions that prevent people from buying disability insurance:
“It Won’t Happen to Me”
The odds are high that you’ll find yourself disabled sometime during your working life. A 20-year-old has more than a one-in-four chance of being disabled before reaching retirement age, according to the Social Security Administration (SSA). Fifty-six million Americans live with disabilities, and for 38 million of them, the disability is severe.
“Social Security Will Cover Me”
Yes, Social Security pays disability, but not enough to cover many expenses. And the program is so strict in classifying disabilities that its beneficiaries are likely to die a few years after receiving such benefits. In early 2015, “Social Security paid an average monthly disability benefit of $1,165,” according to the SSA. This barely puts a person above the poverty level.
Plus, Social Security payments for disabilities can take a while to receive. Benefits are payable starting the sixth full months after disability begins, though that could be extended by several months due to application and processing delays.
The SSA also has stricter requirements than private plans or other government programs.
Unlike workers’ compensation or veterans’ benefits, Social Security doesn’t give temporary or partial disability payments. To receive SSA disability benefits, a person must be unable to work due to a severe medical condition that lasts at least a year, or else is expected to result in death. The medical condition must also prevent them from doing their job or from adjusting to other work.
“My Disability Coverage at Work Will Be Enough”
Most workers don’t make contributions to their disability insurance plans, as employers cover most of the costs.
Among workers covered by a short-term disability plan, 75 percent have a plan with a maximum benefit amount, according to the Bureau of Labor Statistics (BLS). The median amount a worker would be eligible to receive was $584 in March 2014. Meanwhile, the median-length coverage for a short-term disability is 26 weeks.
Of workers who have disability insurance, 93 percent have a short-term plan. Unfortunately, not everybody has employer-sponsored coverage. For example, BLS found that service workers are the lowest-paid occupational group; but they're the least likely to have insurance through their employers.
“I’ve Saved Enough”
The average disability claim for individuals lasts about 31 months, according to the Council for Disability Awareness. That’s a long time to depend on a savings account to pay the bills.
The personal savings rate in the United States is 5.7 percent, according to the U.S. Bureau of Economic Analysis. That means that for every $100 in after-tax income, about $5.70 is saved for such things as retirement and emergencies. Most experts recommend saving 10 to 15 percent of your income.
If you have an emergency savings account, congratulations. You can use that money to cover your expenses if you become disabled. But if you don’t have an emergency fund, then you’re among the 32 percent of adults who couldn’t adequately cover themselves in case of a long-term emergency, according to the U.S. Federal Reserve Board.
Want to determine your chances of becoming disabled? The Council for Disability Awareness, a trade group backed by the insurance industry, has an online calculator to determine your personal disability quotient. Plug in a few numbers, to see what your odds are.