02/09/2018 How to Protect your Paycheck with Disability Insurance

Marla Hill, Senior Copywriter

How to Protect your Paycheck with Disability Insurance

You’ve probably heard of disability insurance, but do you really know what it means, how it works and if you need it? You should, as it may be may be one of the most critical types of insurance to have.  Why? Disability insurance is insurance for your paycheck, providing a cash portion of your income if you can’t work due to an injury, accident or illness. If you think it can’t happen to you, think again: one in four of today’s 20 somethings will become disabled before age 67.1

If you work and rely on your income for bills and living expenses, keep disability insurance on your radar.  Know the facts and consider:

What's the worst that can happen?

It’s not fun, but it is important to think about how you might handle a worst case scenario financially if you’re not able to work. Do you have funds to deal with it?

If you’re like most people, you don’t. According to a 2017 GOBankingRates survey, more than half of Americans have less than $1,000 in their savings accounts.3  That’s not likely to last 34.6 months—the duration of the average long-term disability claim.1  In fact, most people—53%—don’t have savings that could cover expenses for just three months2.

Disability insurance-your safety net

Chances are you can’t build a sufficient emergency fund overnight. But you can get disability insurance. Know your options. There are two main types of disability insurance4:

  1. Short-term disability
  • Typically replaces 60% -70% of base salary
  • Covers a few months one year, depending on the policy
  • May have a short waiting period after you become disabled and before benefits are paid
  1. Long-term disability
  • Typically replaces 40%-60% of base salary
  • Benefits end when the disability ends. If disability continues, benefits end after a certain number of years or at retirement age
  • 90 days is a common waiting period after disability and before benefits are paid

How to get coverage:

Social Security
If you qualify to receive Social Security Disability Insurance (SSDI), the average benefit amount in 2017 was $1,171 per month, and you could potentially receive less than this amount3.  

But don’t hold your breath while waiting for disability from Social Security: There is usually a six-month waiting period before benefits begin and more than 1 million people currently await a hearing to see whether they qualify for disability benefits from Social Security, with the average wait nearly two years3.

Many employers offer disability coverage that you can enroll in. Typically, employers pay for some or all of the cost of premiums. While that sounds great, make sure the coverage is enough to meet your financial needs. Also, remember, if you leave your job, the coverage doesn’t leave with you as your employer owns the policy.

Supplemental /Voluntary
Not all employers pay for disability coverage but offer it as a voluntary benefit.  This means you purchase and pay the entire premium for the coverage. If your employer doesn’t offer disability, or it’s not enough coverage, supplemental disability helps fill the gaps. Plus, if you ever become disabled and need to use the coverage, the benefits will be tax-free. And you own the policy—if you leave your job, your coverage moves with you (as long as you continue to pay for it).

How much disability coverage do you need?

Add your information into the Life Happens calculator  to estimate what you need to maintain your standard of living if you became disabled.

Being able to earn a living is one of your most important assets. Make sure it has the protection it needs with the disability insurance that’s right for your needs.

1 “The chances of becoming disabled are rapidly increasing; disability statistics.” Council for Disability Awareness, 3 July 2013,  www.disabilitycanhappen.org/chances_disability/.
2 Huddleston, Cameron. “More Than Half of Americans Have Less Than $1,000 in Savings in 2017.” GOBankingRates, 19 Sept. 2017, www.gobankingrates.com/saving-money/half-americans-less-savings-2017/.
3 Ohlemacher, Stephen. “Social Security disability backlog tops 1 million; thousands die on waitlist.” The Denver Post, The Denver Post, 18 Sept. 2017, www.denverpost.com/2017/09/18/social-security-disability-backlog-thousands-die-waitlist/.
4 Marquand, Barbara. “Disability Insurance: Why You Need It and How to Get It.” NerdWallet, 20 Oct. 2017, www.nerdwallet.com/blog/insurance/disability-insurance-explained/.

Supplemental insurance policies are underwritten by Combined Insurance Company of America (Chicago, Il) in all states except New York. In New York, these policies are underwritten by Combined Life Insurance Company of New York (Latham, NY). All policies contain exclusions and limitations, see the policy for details. 

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