I receive questions from readers who ask about a series of financial questions, and a recent reader asked: “Is it smart to buy disability insurance?”
Of course, without understanding the complete financial situation of someone, it is impossible to give a direct answer “yes” “Or” no “, I can give an idea of when it is smart to buy disability insurance.
Before jumping into the question, I just want to recap what disability insurance is if you’re not familiar with it. In short, disability insurance is a policy that you buy that will supplement your income in the event of a disability that prevents you from working.
This insurance is intended to allow you to maintain an income stream to help you keep track of your finances if you are going to be out of work for an extended period of time.
An example of how much it can benefit you.
If you are 35 years old, earn $ 50,000 per year and become disabled for the rest of your life, you will lose about $ 1.5 million in income between 35 and 65 years. And this does not even take into account increases, promotions or benefits that you may have earned during this period.
Then, an average person could risk a couple of million dollars or more by not having disability insurance. When you think about it that way, it’s a little scary, is not it?
You may have a $ 500,000 term life insurance policy to insure against your death, but you may be neglecting it even more by not protecting yourself against a disability.
When disability insurance is a good idea.
Do you earn income? If so, buying disability insurance is probably the smartest thing. He is much more likely to be disabled for six months or more during his years of work than when he dies.
In fact, even at 30, you have a 1 in 5 chance of becoming disabled for a year or more. Even a year without income could be devastating to your finances. In the best case scenario, you may need to exhaust your emergency savings.
In the worst case, you will not have enough saved to cover all your expenses during this time and you will have to resort to taking on expensive debts. In some cases, a long-term disability can force people into bankruptcy.
When disability insurance is not a good idea.
Although you can clearly see the benefits of protecting your income against a disability, it is not for everyone. For example, if you are married and both work, you may find yourself in a situation where two incomes are not a necessity to pay the bills.
You or your spouse may be working part time only for extra money, or you can otherwise live without both income.
In a case like this, it would not make sense to pay disability insurance premiums to both parties, so you could save money by covering only one of you.
One of the biggest obstacles is that disability insurance is another premium to pay, and if money is scarce, this is almost always out of the question. If you can barely keep up with your minimum payments and monthly bills, buying disability insurance can do more harm than good.
Think of it this way: if you can barely keep up now, with full income, even if you have disability insurance, at best it will continue to stomp, and most likely only earn a portion of your income from a claim, and end up going bankrupt independently.
It’s not a fun topic to discuss, but it’s real. Disability is the leading cause of foreclosure and bankruptcy.
If you can, you should protect yourself against that, but if your finances are already disorganized, you should order that house before you can assume another monthly payment to get insurance.
What about the disability of social security?
Good luck. It is difficult to qualify for social security benefits, and even if you do, the amount you receive is very low compared to the income you had before the disability.
I have written about how difficult it is to qualify and receive disability benefits from Social Security in the past. Therefore, do not trust it and see all the benefits you receive from Social Security as a bonus.
How to obtain disability insurance.
First, you should check with your employer. If you are a full-time employee with benefits, there is a good chance that you will receive some type of disability insurance. In some cases, your employer will pay a short or long term disability policy automatically, and in other cases, you may have the option to buy additional insurance through your group plan.
Getting coverage through a group plan will almost always be cheaper than going out and buying coverage on your own, so check first.
If your employer does not offer coverage, then you will be alone to find a policy. Buying an insurance policy requires some homework, as there are many shady sales representatives and companies that can offer low cost coverage.
Many of the large insurers will offer a disability or will work with a company that does. Check with your current insurance companies, whether homeowners, life or otherwise, and see what they offer.