Let’s talk about disability insurance! Said no one. Ever. Thinking, talking and yes, shopping for insurance you’ll only use if too injured or ill to work isn’t exactly a time. But it’s certainly important, given the odds aren’t exactly in your favor. Scary stat time: More than 25% of (or one in four) American workers experience a long-term disability over three months at some point during their careers. To make sure you’re covered, here are the answers to 20 questions about disability insurance you’re too embarrassed to ask.
1. Don’t I get disability insurance from the government?
As a blanket rule? No. There is such a thing as Social Security Disability Insurance that you can apply for, but there’s no guarantee you’ll get benefits. The government actually has, by their own admission, a very strict definition of disabled. Even if you ultimately meet it, you’ll go a good stretch of time before you receive a check. The Social Security Administration generally takes around three to five months to decide on a case — and there’s also a mandatory seven-month waiting period between the date of your disability and your first payment. Plus, not to be a real Debbie Downer or anything, but SSDI isn’t exactly robust. It commonly covers less than 60% of your pre-tax income.
2. OK, but don’t I also get disability from my employer?
Many companies offer short-term disability insurance and some long-term disability insurance as employee benefits. But the long-term coverage might be insufficient (more on this below).
3. Wait, there are two types of disability insurance?
Yup. Short-term disability insurance replaces your income if you’re out of work for a short period of time, typically around three to six months. Long-term disability insurance replaces your income for longer stretches of time. We’re talking years or even decades. But it takes awhile to kick in. You’ll have wait out what’s known as an elimination period before receiving benefits. And those periods can run anywhere from 30 to 365 days, depending on what you opt for.
4. What’s the point of having two types of disability insurance?
I wondered that, too! Turns out, short-term disability is more of an employer benefit than anything else. You can buy a private policy, but it’ll cost you handsomely. You’re better off building an emergency fund and opting for a long-term disability policy with a shorter elimination period instead.
5. So how much disability insurance do I need?
As a general rule of thumb, we recommend opting for a long-term disability insurance policy that’ll pay you up to 60% of your gross salary tax-free, because that should come close to 100% of your current take-home pay. But everyone’s situation is different. (You can compare disability insurance quotes here).
6. The long-term disability insurance I get through work doesn’t cover that?
Most employer-provided disability insurance covers 50% of your salary. On top of that, the benefit is taxed at 25% or more. And, beyond the fact that you’d be getting much less than your normal take-home pay, that policy is contingent on your employment with said company. So there are clear benefits to having a standalone policy.
7. OK, but do I need purchase that full 60% policy?
Not necessarily. Many people who have a short-term or long-term policy through work purchase supplemental disability insurance to make up the difference or to at least ensure they have enough money to cover their bills if unable to work.
8. Doesn’t that mean I would be underinsured if I leave my job for some reason?
It doesn’t have to, because you can always shop around for more disability insurance. Plus, there’s this thing called a future purchase rider you can add to a supplemental policy. The rider basically lets you purchase a primary private long-term disability policy if you lose the one you had through work — without have to go through the application process all over again.
9. That makes it sound like the application process is complicated?
Well, given we’re like two seconds away from having drones deliver our groceries, relatively speaking, it is. Disability insurance, like life insurance, requires a phone interview. You also might have to take a medical exam as part of underwriting, so the whole application process takes about four to six weeks.
10. Why would I have to take a medical exam?
Insurers want to know how risky you are to insure. When it comes to, say, car insurance, they can look at your driving record. But when trying to gauge how likely you are to become disabled, they need information on your health. (Editor's note: This article was updated on September 7, 2017 to clarify how the disability insurance medical exam and any exclusions resulting from it work.)
11. What exactly are they looking for?
Disability insurers are primarily looking for pre-existing conditions. A pre-existing condition can result in an exclusion. Exclusions limit what type of illness or injuries your policy will cover. So, say, you broke a hip prior to applying for insurance. Your policy might exclude hip injuries related to the previous break, meaning if you're unable to work due to one, you can't receive your benefits. You can learn more about disability exclusions here.
12. Is that all my policy is based on? My prior health?
Nope. Your premiums will vary depending on how much coverage you’re looking to buy. That includes the amount, benefit period (how long you’ll receive checks) and elimination period (after which your benefits will kick in). Insurers will also consider your age, location and occupation. The riskier you job, the greater the likelihood you’ll wind up disabled. So if you’re, say, a trapeze artist, you should expect your premiums to be high.
13. Yeah, I get that, but why would my location matter?
Blame the modern insurance pool: If you live in a state where people are filing a lot of claims, it’s going to cost more. But it helps to shop around since every insurer is different. (Read: One may have paid out more claims than another.)
14. Can you give me a ballpark figure on how much disability insurance costs?
Yes, actually. A policy generally costs between 1% and 3% of your annual salary. So, for instance, if you make $50,000 a year, you can expect to pay around $60 to $125 a month or $500 to $1,500 a year. You can learn more about how much disability insurance costs here.
15. So … how does the insurer know I’m disabled?
In the event that you’re too ill or injured to work, you’ll file a claim. To get approved, you’ll have to turn over information about your job and your diagnosis, which usually involves a statement from your doctor and medical records or tests verifying your condition.
16. Wait … why do I need to turn over information about my job?
Part of the claims process involves demonstrating you can’t perform job duties. Depending on what type of policy you have, that threshold will vary. If you have an own occupation policy, you can collect benefits if you’re unable to work at your regular occupation. If you have an any occupation policy, you can only collect benefits if you can’t work at all. Obviously, we recommend going with an own occupation policy, though, your premiums will be higher.
17. How likely is it my claim will get denied?
It all depends on your policy and the injury or illness that's rendered you unable to work. As a baseline, if you have a disability that aligns with your policy's definition of one (meaning it also doesn't fall under any exclusions) and can't work, your claim with get paid.
18. When will I start to receive checks?
So long as the claims process goes smoothly, you’ll start to receive checks the month after your elimination period expires. We generally recommend going with a policy that has a 90-day elimination period, but, again, the length of time you should opt for will vary, depending on whether you have short-term disability insurance and how much of a premium you’re able and willing to pay.
19. How long will those benefits last?
Until you can go back to work or the benefit period ends. As a general recommendation, we suggest a benefit period to age 67. So if you become permanently disabled at a relatively young age, you’ll be covered until your retirement benefits kick in.
20. Does anyone get my disability insurance checks if I die?
Possibly. In fact, probably, at least for a little while. Most long-term disability policies come with what’s known as a survivor benefit rider. That rider pays out either a lump sum (usually three to six times the monthly benefit) or a few extra months of benefits to a beneficiary if you die. It’s not meant as a life insurance substitute though, just a feature meant to help families of a disabled worker. You can learn about other disability insurance features or riders to consider here.