Oh, long-term disability insurance. You're scaring off everyone! You do the right thing, but are so unpopular that nobody knows about it. Underneath that intimidating exterior is something valuable and good. You, long-term disability, are the Shrek of personal insurance.
You see, like Shrek (or the Beast or any other don't-judge-a-book-by-its-cover character), long-term disability insurance is scary because it's misunderstood. For example, people hold onto the myth that disability is a low-probability catastrophe from a high-risk activity, like getting paralyzed in a skiing accident. But the fact is our risk of disability is twice as high as our risk of early death. And most disabilities are caused by illnesses, not accidents. Boom. Facts. And these myths and misconceptions are a key reason why you probably don't have disability insurance. So, in honor of disability insurance awareness month (May, in case you didn't know), I'm going to do disability insurance a favor and fact-bomb other myths below:
Myth 1: I can rely on some government safety net if I can't work
Facts: It's tougher to qualify for Social Security disability insurance (SSDI) than it is to get into some top colleges! Only 35% of initial Social Security Disability insurance claim applications were accepted in 2012 (compare: the acceptance rate at the University of Michigan is 40%). And if you do qualify, the average SSDI payment is just $1,130 a month.
What about workers' compensation? It won't cover you in most cases, since 95% of accidents and illnesses are non-work related.
If you can do it, you're much better off creating your own safety net.
Myth 2: I have long-term disability insurance through work so I'm covered
Facts: You're in the fortunate minority! Only 47% of employers offer disability insurance. But, you might not be as covered as you think you are. A few things to keep in mind:
- Generally, long-term disability insurance through work is paid with before-tax dollars. This means benefits are taxable, which effectively lowers the payout to you when you're disabled.
- Long-term disability insurance through work generally has more limited coverage than a policy you buy on your own. Some policies may stop payments completely if you're capable of returning to some form of work. They also generally limit the benefit period, sometimes to as little as 2 years.
- If you change jobs, you can't take your long-term disability insurance with you. And if your new employer does not offer disability insurance, you'll need to purchase it on your own. This can be difficult to do as you get older.
Purchasing an individual long-term disability policy will provide you tax-free benefits with features that match your needs. And you keep it for as long as you need it. Supplementing what you already get from work could be a smart move.
Myth 3: Long-term disability insurance only kicks in when I'm not working
Facts: Actually, many long-term disability insurance policies pay benefits even when you're working. Some policies pay so-called "residual" benefits if you're only partially disabled (i.e., can only work part-time due to your health condition). Some policies also pay benefits when you're working in a different occupation because you're unable to work in your regular occupation.
There is more to long-term disability insurance than you think
Long-term disability insurance protects your most important asset - your income. So it's worth the time to separate facts from myths.
Got any other questions about long-term disability insurance (or any other type of insurance)? Let us know at firstname.lastname@example.org
Photo credit: tapeciak.net