Take a second to think about your most important and valuable asset. Your car? Your engagement ring? That collection of Beanie Babies from the 1990s? You missed the one asset that is greatly undervalued and often goes unprotected: your own ability to earn income.
I’m going to say that again, but differently: Your ability to make money is your most important asset.
Earning a living drives everything we do. It even drives our ability to acquire more “valuable” assets. And what do we do for our most important assets? We protect them. We insure our cars, our homes, our belongings (even our engagement rings), and our health. And yet so few people see the importance of protecting their income with disability insurance.
Why Disability Insurance Is Important
Approximately 41 million Americans live with disabilities, according to data from the U.S. Census Bureau. That’s in the U.S. alone. What’s more, one in four of our nation’s 20-year-olds insured for disability will become disabled before reaching retirement age.
How many of your peers are aware that they have a 25 percent chance of being disabled during their working lifetime? Probably none of them.
You’re more likely to become disabled than you are to win the lottery (one in almost 14 million) by a long shot. Yet many of us spend tons of money on lottery tickets each year and give no thought to disability insurance. We’re a lot more vulnerable to injury and illness than we think, but we’re not doing much about it.
Although 48 percent of people believe they need disability insurance, only 20 percent of them actually having disability insurance, according to a 2019 study by LIMRA, a financial research institute.
These uninsured individuals who become disabled will have to rely on personal savings to keep themselves — and possibly their entire family — afloat. Their savings will have to be enough to cover regular living expenses, plus additional costs related to their disability.
Sadly, four in 10 adults would have to borrow or sell something in order to be able to pay an unexpected expense of $400, according to a report by the Federal Reserve. Among U.S. workers, 78 percent are living paycheck to paycheck, with a shocking 56 percent of them saving less than $100 a month, according to a study by Career Builder.
How to Get Covered
We know that not everyone has access to disability coverage through his or her employer.
If you do have a policy through work, this is the most affordable way to cover your greatest asset.
But if you don’t, it’s still possible to protect your income. Let’s look at your options.
Short-Term Disability Insurance
Short-term disability (STD) provides salary protection — often up to 80 percent of salary. It applies for employees who have a qualifying illness or injury and are unable to return to work. After a short waiting period of up to 14 days, the disabled employee could receive coverage over the course of two weeks to two years, depending on their plan.
Short-term disability can cover a prolonged illness, childbirth, or an injury that impacts your work.
Long-Term Disability Insurance
Long-term disability (LTD) is similar to STD but provides coverage over a much longer time frame. LTD offers salary protection, usually at a lower rate.
“Most LTD caps its income replacement at 60 percent of your salary,” says Andrew Stewart, founder of AMS Resources Network. Plans will often continue to pay until the disabled employee turns 65. However, some plans pay only for a period of five to 10 years.
What If You’re Self-Employed or Your Employer Doesn’t Provide Anything?
If you’re self-employed or your employer doesn’t provide the benefit of disability insurance coverage, you can get covered on your own.
If you can’t foot the bill for both short-term and long-term disability, try to have an emergency savings fund. This fund should cover you for the short-term. Then it can pay the premium on a long-term disability policy.
“Using an emergency fund is an excellent way to belay the need for STD,” Stewart advises.
“I always recommend a client buy their own LTD policy instead of an employer’s because if you leave the job, you have to qualify for the new LTD policy medically and you may not at that later point. Buy your own policy, and it's forever portable — you only have to qualify once while young and healthy.”
The most important things to keep in mind when getting coverage of your own is to know how much you need to get paid out of your disability policy. What’s more, you should know how long that policy will remain active, and under what conditions the insurance company must pay you if you become disabled.
The longer you’re in business as a self-employed person, the better off you will be when trying to obtain a disability policy. Make sure that your policy is guaranteed renewable so that as long as you pay your premiums on time, the company has to maintain your policy at the same price and benefit amount that you negotiated at the beginning.
Additional reporting by Kelly Meehan Brown.