If you have bills to pay, you need disability insurance.
If you’re 25 years old, the likelihood that you’ll become disabled at some point in your working lifetime for 3 months or longer is 58%. What’s more, there’s a 38% chance that disability will last 5 years or longer. In other words, there’s a good chance you might not be able to work. Sometimes for years, during the prime earning time of your career.
You’re more than 4x more likely to become disabled than die by age 65
Unless you’re independently wealthy, how to pay your bills when you can’t work is likely to cause a significant amount of stress (on top of the fact that you have fallen ill or become injured) so it’s worthwhile to protect yourself in the event of a catastrophe.
You don’t need to be hurt at work in order to become disabled
Many people don’t think they’re at risk of becoming disabled if they don’t work at a dangerous job. However, you can be hurt outside the workplace, suffer a serious illness, or experience a mental health issue that prevents you from doing your job (or any job) for an extended period of time.
Obviously there are a variety of factors that contribute to your individual risk of facing a disability, but there’s no one person that doesn’t face the possibility in their lifetime. Protecting your income with disability insurance will at least ensure you can afford your basic expenses until you are well enough to return to the workforce.
What does disability insurance do?
Disability insurance replaces a portion of your income if you become disabled (physically OR mentally) and are unable to work. It will provide a monthly income to you so you can pay your bills for the duration of time you need for recovery.
How much coverage do you need?
How much disability insurance coverage you need depends on your financial obligations more than it does your income.
Add up all your monthly bills and expenses, including your housing, transportation, food, and debt payments, as well as your savings and miscellaneous costs like clothing and entertainment. This is how much you need.
You always want to consider your expenses and not your income. Disability insurance won’t replace 100% of your income, and even a combination of insurance plans will be capped at 85% of your earnings, which just gives you another reason to live well below your means!
Your employer might provide disability insurance as part of your job benefits
It’s not uncommon for your employer to provide you with disability insurance as part of your full-time employment benefits. If you’re not sure if you have coverage or what your coverage consists of, simply check with your HR department. It’s important to verify that your plan is enough to meet your needs so that you can seek additional coverage through a private insurance plan in case it isn’t.
What about critical illness insurance?
Critical illness insurance is one more type of personal insurance many people are uncertain if they need. Like disability insurance, you will receive a payout from critical illness insurance if you become ill and unable to work. However, unlike disability insurance, you typically receive your payout as a single lump sum rather than a monthly income. The benefit is tax-free and won’t affect any disability insurance benefits if you are also receiving those.
At first glance, it probably seems like the best idea to get both critical illness and disability insurance. But you probably don’t need to. Critical illness policies are very specific (ie. covering only some types of cancers at certain stages) and typically expensive. This makes them a costly purchase for a payout that’s not guaranteed.
However, it t can make sense to get critical illness insurance if you don’t qualify for disability insurance. This might be because you don’t have any earned income (ie. you’re a stay-at-home parent).
For the most part, disability insurance will provide coverage in the event of a critical illness. Which makes it the best choice and a must-have for everyone.
When it comes to shopping for insurance, make sure to check a number of different plans through a number of different providers. Find the policy that best fits your needs and your budget.
I spend a lot of time on the highway for work and non-work purposes. Thankfully, my employer does afford me disability insurance which I feel more comfortable having.
Friend of mine told me there was no need for it but you never know. You can bank your emergency fund but it’s nice to know that there will be ale frog available so as not to drain your funds.
Right!! Exactly. It’s so nice to know you won’t wipe out your emergency fund if you become disabled. Insurance is so important in addition to savings to protect you from all sides.
Thanks Bridget this is great and something many young people don’t even think about. My husband was the healthiest guy I knew but at 23 was diagnosed with bladder cancer and now doesn’t qualify for a lot of these types of insurance. This was the final kick in the pants for me to apply!
This is something I am trying to encourage my 20 year old brother to consider once he starts working. I spent the first couple years of my 20s feeling healthy and invincible and then was diagnosed with Multiple Sclerosis at 23. I’m 30 now, and have been lucky to have minimal effects from the disease, but it has completely changed how I think about my finances and the considerations I have to make when it comes to my uncertain future.
Don’t take your health for granted, and get disability insurance while you’re young and there’s no issues!