Disability coverage could save you financial hardship – InsuranceNewsNet
Disability insurance replaces part of your monthly income if you suffer an eligible injury or illness that affects your ability to work and earn wages.
Things like a broken hand, pregnancy, depression, and cancer can all be covered by disability insurance.
Disability insurance can be an extremely useful financial safety net when looking at certain statistics. For example, you are 3.5 times more likely to claim a disability insurance policy compared to a life insurance policy. One in four Americans will face a career-altering disability.
Additionally, 70% of Americans said they couldn’t go a month without a paycheck before experiencing financial hardship.
Despite both the very real possibility that you could face a disability and the very limited amount of savings most consumers have in case something goes wrong, only 14% of Americans have disability insurance, while more than half have life insurance.
If I piqued your interest, here’s what else you need to know about disability insurance.
Generally, short-term or long-term disability insurance will cost between 1% and 4% of your annual income in annual premium.
My employer, Breeze, is an online insurance broker for critical illness and disability insurance, and we recently analyzed all long-term disability insurance quotes that came through our platform in 2020 and 2021 to find an average cost of disability insurance.
In 2021, the proposed average annual cost for long-term disability insurance was $1,297or $108.11 monthly.
When looking only at citations from the state of Tennesseethe average annual cost of long-term disability insurance was $1,071 or $89.25which is significantly lower than the national average.
For reference, the annual cost shown in 2020 was $841 ($70.08 monthly) for Tennessee.
In terms of impact on the cost of your disability insurance policy, personal factors such as age, medical history, occupation and income will have a say. For example, a smoking oil rigger will likely pay a higher rate than a young, healthy financial advisor.
Policy details will also impact the price of disability insurance. Selecting a longer benefit period, a shorter waiting period and a higher monthly benefit will increase the price.
Let’s talk about what the details of the disability insurance policy will look like.
Short-term disability insurance will generally replace between 40% and 60% of your monthly income, while this range is often between 60% and 80% for long-term disability insurance.
Short-term benefit period options are usually between 3 and 6 months, but can be one or two years. On the other hand, long-term disability benefit period options can be up to 20 years or up to age 65 or 67.
Finally, short-term disability insurance often has a waiting period of less than 14 days, while the long-term waiting period can range from 30 to 365 days, but usually hovers around 90 days.
Things to consider
If you think disability insurance isn’t necessary because of workers’ compensation, remember that your injury or illness must be work-related to qualify for this coverage. Disability insurance covers work-related and non-work-related injuries or illnesses that qualify for coverage.
Additionally, short-term disability insurance is often the better option than long-term disability insurance if you are seeking coverage due to pregnancy and maternity leave. With this though, you need to get coverage before you get pregnant, otherwise it will be marked as a pre-existing condition and likely won’t trigger any benefits.
Deciding whether disability insurance is right for you will depend on your particular personal and financial situation.
mike brown is Director of Communications at Breeze, an insurtech that makes it easy to buy disability and critical illness insurance.