Published: April 2016
Going to work each day and collecting a regular paycheck may just be part of your routine — something you don't even think about much. But what would happen if you were injured and couldn't work? Accidents (and illnesses) happen. If they are serious enough to keep you from working, how would you pay your bills? That's where disability insurance may be able to help.
Disability insurance is designed to help replace a portion of your income by providing periodic payments should you be unable to work due to an accident or illness, says the National Association of Health Underwriters (NAHU). Typically, this coverage may provide between 45 and 65 percent of your gross income. Disability insurance benefits may help you stay on top of your bills — like housing costs, car payments and medical expenses — while you're recovering.
If you're generally healthy, it may be hard to imagine being out of work for more than the occasional sick day. However, there are about 9 million disabled workers in the United States, and more than 25 percent of today's 20-somethings will become disabled prior to reaching retirement age, says the Social Security Administration. The Council for Disability Awareness (CDA) also notes that many long-term disabilities are due to arthritis, cancer, heart attack, diabetes or back pain. It can be hard to predict if, or when, someone will be faced with a condition or doctor’s diagnosis that causes them to miss work.
A disability can also lead to extra expenses, such as medical bills and home modifications, says the National Association of Insurance Commissioners (NAIC). Having disability insurance in place "just in case" can be a safeguard — helping to ensure you can pay for these expenses in addition to your typical bills. It may also mean you won't have to dip into saving and retirement accounts to help cover bills.
The NAHU also notes that it's important to understand that policies and insurers may vary in how they define a disability. There may be differences in what is considered a disability and whether or not coverage is provided for an illness. Also make sure you understand whether they will provide benefits if you can't perform you regular job, if you're partially disabled or if you can't work at all.
The NAIC states that there are typically two types of disability insurance. Short-term disability coverage usually lasts for three to six months after an injury or illness occurs. Long-term coverage typically begins after short-term disability insurance ends, after about six months, and, depending on your situation and coverage, can last for a few years or until you reach retirement age. While some states require employers to provide short-term coverage, there are no laws that require >long-term coverage to be provided, although you may be able to purchase it through you employer or an insurance agent.
You may also qualify for the Social Security Disability Insurance program if you have a condition that will keep you out of work for at least a year, provided you have worked long enough to qualify for Social Security. If eligible, you and certain family members may receive a monthly Social Security payment. However, it can be difficult to qualify, and the payments are frequently not enough to live an average lifestyle, says the NAHU.
Many people think they already have disability coverage through their employer, but it's important to differentiate between workers' compensation coverage and disability insurance. Worker's compensation typically covers only incidents that are work-related. Disability insurance, however, may help provide coverage for an injury or illness that is not the result of an accident or exposure related to your employment, says the NAIC. If your employer does offer disability insurance, be sure you understand what it covers and how long it will last — you may want to increase the coverage (if possible) or purchase an individual policy to help provide additional coverage.
If you, like many people, rely on a regular paycheck to stay on top of your expenses and support family members, disability insurance may help provide a financial safety net. Contact a local insurance agent to learn more about disability insurance or to discuss your existing coverage.