Why You Need Long Term Disability Insurance

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Why You Need Long Term Disability Insurance
There are so many types of insurance that you “must have”. Health insurance provides coverage for medical expenses, while life insurance provides financial support for family members left behind when you die. What about disability insurance? Disability insurance, on the other hand, protects your income if you are unable to work as a result of…

There are so many types of insurance that you “must have”. Health insurance provides coverage for medical expenses, while life insurance provides financial support for family members left behind when you die.

What about disability insurance? Disability insurance, on the other hand, protects your income if you are unable to work as a result of an accident or injury.

In an ideal world, everyone would be able to purchase insurance to protect themselves and their finances when the unthinkable happens; however, that is not a reality for many individuals.

What Is Long Term Disability Insurance?

Why You Need Long Term Disability Insurance

While you may imagine the odds of falling victim to an accident that renders you unable to work to be unlikely, you might want to think again.

Accidents happen, and people are injured on the job regularly, as both data and experience suggest. Disability insurance can protect you financially if an accident sidelines you at work.

Within the area of disability insurance, there are two categories: short term disability and long term. If you are unable to work for, say, a few months, short term disability could kick in to supplement your missing paycheck.

If your injuries or condition are more substantial, however, lasting years or decades, long term disability insurance will provide for your needs.

Employers often provide their employees with short term disability, and they sometimes offer long term policies; however, this coverage is not always substantial enough to completely replace an individual’s income following a severe injury or accident.

Typically, you’ll only find short term policies from employers. If you find yourself hindered from working permanently, the policy at your workplace probably will not be substantial.

In those cases, you may want to consider looking to an insurance provider and purchasing a sufficient long term disability policy or some form of alternative to long term care. In addition to your employer and insurance companies, you may be able to obtain disability insurance from sources like professional associations in the form of a group plan.

Group plans are likely to offer you more affordable rates than individual policies you purchase through a life insurance company. They may also only last as long as you remain in your field. When you purchase your policy, you get a wider range of policies to choose from.

How Does LTD Work?

One of the key elements of disability insurance you need to understand is the distinction between own occupation and any occupation policies. This differentiation determines whether or not you get coverage based on the nature of your injury and how it impacts your ability to work in your field.

With own occupation disability insurance, a disability is considered as one which prevents you from performing your own occupation.

Any occupation insurance, on the other hand, only accepts your disability if it prevents you from working in any capacity at all.

Naturally, any occupation policies are more affordable as they are less likely to pay out. But if you’re looking for comprehensive coverage in case an accident limits your ability to do your specialized job. You may consider it worthwhile to purchase an own occupation disability policy. If you can afford it, that kind of security is 100% worthwhile.

Who Needs Long Term Disability insurance?

If your employer offers disability insurance, you may be wondering if it is cost-effective to purchase this type of insurance on the off chance you become sick or injured and unable to work.

The answer to this question is not cut and dry and depends largely on your age, health, and financial situation.

When I started my career, my employer did not offer long term disability insurance. Even if they would have, I’m confident that I wouldn’t have signed up for it. Primarily, because I didn’t see the value, and my health insurance was taking enough out of my paycheck already.

For individuals in their 20’s and 30’s, paying for disability insurance may seem like betting against your ability to continue working. The reality of the situation is far more people become sick or injured and unable to work than one might imagine.

On one side of the coin, younger people may still have the benefit of parents or other family members to take care of them or help cover finances.

Conversely, people in this age group are also starting families and carry financial responsibilities that would be jeopardized if their income would suddenly vanish. Providing for a spouse or younger children is one of the main advantages of disability insurance for people in this age set.

Is Long Term Disability Insurance Worth It?

Ultimately, those factors led to me taking out my first long term disability policy. With a wife and a new son, I knew it was time to step it up. The bottom line is, any person who counts on their paycheck to support themselves and their family should consider disability insurance.

Statistically, the chances of suffering an injury or disability that renders you unable to work for 90 days or more are between 30%-50% before the age of 65. If you’re trying to decide whether or not long term disability insurance is worth purchasing in your specific situation, you should ask yourself the following questions:

  • What would happen if you couldn’t work for 90 days?
  • Could you pay your bills?
  • What about your mortgage?
  • Could your family survive?

If thinking about any of these questions gave you anxiety and left you wondering how you would pay the bills, you probably need to consider purchasing disability insurance. Even if there is an employer-sponsored plan, you need to weight its limits against the financial needs listed above. If the plan falls short, it’s time to look into purchasing a plan of your own.

90 Days Of No Income = Ouch

Being out of work for 3 or more months can be devastating to a person of any age, but particularly those who have dependent children and spouse’s relying on that income. Short and long term disabilities are emotionally, physically, and financially stressful. Being able to pay for your family’s basic needs should not be among the long list of worries you’ll face.

For this reason, disability insurance should be at the top of your list of insurance policies to have. Ironically, disability insurance is often overlooked, especially by the younger set of workers who do not think in terms of not being physically able to work.

I was one of them until I started to ask myself the difficult questions and determine how my family would be affected if I was unable to work for months, years, or even decades.

Bottom Line

If you are working and rely on your paycheck to survive, disability insurance is something that should be considered. Many people think they can’t afford “another” insurance premium; however, few people can afford not to have disability insurance.

By all means, take your employer up on their disability policy if they offer one, but plan to supplement it with a more robust long term disability insurance plan if you’re serious about protecting your family.

If you want to be covered no matter what, I recommend purchasing own occupation insurance. That way, your policy will pay out if your disability prohibits you from performing at your specific job. Otherwise, your claim could be denied, and you might have to take on another job outside of your profession.

The bottom line is this: health insurance and life insurance are wonderful policies to have; in fact, they’re critical. But neither of those types of policies will protect your family if you are alive and unable to work due to an injury or disability.

Long term disability insurance is one of the soundest financial purchases you can make.

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About Jeff Rose, CPA

Jeff Rose is an Illinois Certified Financial Planner and Iraqi combat veteran. He is passionate about Roth IRA's, term life insurance, Cross Fit, Double-Double's at In-N-Out Burger, and smart financial decisions. You can find Jeff around the web at Good Financial Cents. You can follow his updates on Twitter: @jjeffrose.

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