Accidents and illness are a part of life, and serious ones can leave you unable to work and without a source of income. So how do you protect yourself financially from losing income if you become disabled?
Short-Term Disability Insurance
Short-term disability insurance is a type of insurance that is intended to cover a portion of your income if you become disabled and temporarily unable to work. It is sometimes offered through employers, though this is not generally required. Only five states mandate that employers offer their employees short-term disability insurance. After waiting out the elimination period, you can expect to receive a percentage of your income from insurance, typically about 50-60% of your weekly earnings.
Why You Need It
Not all injuries and illnesses are permanently disabling. The recovery process may take longer than what you have available in paid time off, vacation time, or sick leave, but not so long that you don’t expect to return to work within a few months. While an emergency fund can be helpful to fall back on, 28% of adults don’t have an emergency fund at all. If you’re one of those adults, you’ll be in dire straits if you become disabled and unable to work. It is important to note that this form of insurance covers injuries or illnesses sustained while not on the job. Injuries sustained while working are usually covered under your employer’s workers compensation insurance.
How Much Should You Have?
How much insurance you end up needing will depend mostly on your pre-disability expenses. Recovery time varies depending on the disability, so the amount of income you need to replace will depend on your current expenses. There may be a dollar limit on your policy that prevents you from collecting more than a specified amount, even if it would be lower than the percentage you would otherwise be entitled to. If your employer offers short-term disability insurance, consider the details of the policy offered. If you became unable to work, would you be able to make ends meet based on the amount you would be collecting? If not, you may want to look into better coverage options. Remember that the more coverage you have, the more you will pay in your monthly premiums..
Long-Term Disability Insurance
Long-term disability insurance is similar to short-term disability insurance in that it replaces a percentage of your income in the event you become disabled and unable to work. The primary difference is in the amount of time you can receive benefits for. Long-term disability allows you to collect benefits for years instead of months. As long as you continue to qualify as being disabled, you can collect benefits until your policy ends. This could last until you turn 65 or reach regular Social Security Retirement Age.
Why You Need It
Some injuries or illnesses are permanently debilitating. You may never be able to work again, but you’ll still have living expenses to pay for. If you have a family you provide for, the stakes are even higher. Having a high paying job that you would have a hard time replacing income from or a technically skilled job you might not be able to perform if disabled are other good reasons to get this type of insurance. Long-term disability won’t replace your income entirely, but it can help you retain some form of income. Depending on the policy, you may also supplement your insurance policy with Social Security Disability Income to help increase the amount of the benefits you receive.
How Much Should You Have?
It is especially important to carefully read through your long-term disability insurance policy before signing up. Different policies have different qualifying requirements. There is a huge difference between being unable to work your own job versus being unable to do any job. A policy that covers being disabled and unable to work your own job will cost more, but is easier to qualify for. Keep in mind that the elimination period for receiving long-term disability insurance benefits is longer than the elimination period for short-term disability insurance benefits, generally about 6 months. Being able to cover your expenses during an elimination period is another good reason to have a robust emergency savings account.
It’s easy to think that disabling accidents and illnesses are things that happen to other people, but not to you. This can cause you to discount the importance of safeguarding yourself and your income. Short- and long-term disability insurance can help you in this regard. Make sure you have enough coverage to keep yourself financially stable in the event you become unable to work due to disability.