Why You Should Care About Disability Insurance

When you think of insurance, you probably think of health or life insurance. But there’s another type that doesn’t get as much attention: disability insurance. It’s just as important, especially if something happens that stops you from working. Disability insurance can provide a much-needed safety net, offering relief from the financial strain that can come with unexpected disabilities. Let’s break it down and see why you might want to look into it.

Who Should Consider Disability Insurance?

Not sure if you need disability insurance? Here are a few groups who should consider it:

• One and two-income families

• Small business owners

• People working in high-stress, service-related, or production-based jobs

If you're in a one-income household, losing that income—whether temporarily or permanently—could cause a serious financial struggle. Even in a family where both partners work, losing that paycheck can be a big hit if one person’s income covers 30-70% of the bills.

Small business owners face a different challenge, especially those in partnerships or incorporated entities. If one partner/owner is disabled, the other might have to take on extra responsibilities or, in the worst case, shut the business down. And if you're the disabled partner, not only are you losing income, but you might miss important savings/investment planning opportunities.

Even if you're not in one of these groups, many of us work in jobs requiring long hours, strict deadlines, or demanding physical effort. No matter how healthy you are or how much you exercise, accidents or illnesses can happen at any time. Disability insurance helps protect your income in those situations.

What to Look for When Researching Disability Insurance

Now that you know why disability insurance matters, here are some important things to consider when researching policies. Understanding these key aspects of disability insurance can empower you to make informed decisions about your financial security.

1. Definition of Disability: Own Occupation vs. Any Occupation

• Own Occupation: You’re considered disabled if you can’t do your current job. This means you still get benefits even if you could work in a different role.

• Any Occupation: You’re only considered disabled if you can’t work in a reasonably qualified job. This is a stricter definition, meaning you won’t get benefits if you can do any type of job.

2. Benefit Amount and Duration

• Short-Term Disability: Covers part of your income for a short period (a few weeks to six months) while recovering from an illness or injury.

• Long-Term Disability: Provides income for longer periods, often several years or until retirement, for more serious or lasting disabilities.

3. Waiting Period (Elimination Period)

• Shorter Waiting Period: You get benefits sooner, but your premium (monthly cost) is usually higher.

• Longer Waiting Period: You’ll pay less in premiums, but it’ll take longer for benefits to kick in, meaning you might need to rely on savings for a while.

4. Policy Exclusions and Limitations

Not every situation is covered by disability insurance. Common exclusions include:

• Pre-existing conditions

• Injuries caused by self-harm

• Disabilities from substance abuse

• High-risk activities (like extreme sports)

• War or criminal activities

Always check the exclusions and limitations so you know what’s not covered. This step is crucial in ensuring you have a comprehensive understanding of your policy and are not caught off guard by unexpected exclusions.

5. Premium Structure: Fixed vs. Variable

• Fixed Premiums: Your monthly payments stay the same, which makes them predictable. The downside? They’re often higher upfront.

• Variable Premiums: These start lower but can increase over time, making budgeting more challenging in the long run.

6. Supplemental Riders

Riders are extra features you can add to your policy for more protection. Some common ones include:

• Cost-of-Living Adjustments (COLA): Ensures your benefits keep up with inflation.

• Future Increase Options: Lets you increase coverage later without another medical exam.

• Waiver of Premiums: You won’t have to pay premiums while receiving benefits.

These riders can make your policy more customized to your needs but might also raise your premium.

Bottom Line: Disability insurance might not be the first type of coverage you think of, but it's worth exploring, especially if you rely on your income to cover essential expenses. Whether you're a small business owner, part of a family, or working in a demanding job, disability insurance can help protect your financial future if something unexpected happens.