How long-term disability insurance protects you from student loan debt

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Colin LalleyContent Director, Home & Auto InsuranceColin Lalley is the content director for home and auto insurance at Policygenius, where he's been writing about insurance since 2015. His insights have been featured in Inc. Magazine, Betterment, Chime, Credit Seasame, Zola, and the Council for Disability Awareness.

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These days, student loan debt is as American as apple pie. Whether your dream is a white picket fence or all the avocado toast you can eat, if you went to college, you probably have some student loan debt.

Seeing money drained from your bank account every month can cause a lot of stress. And things can get even worse if you're not able to make those payments because you’re disabled and can’t work.

Long-term disability insurance protects you from life’s unknowns and ensures you have a paycheck even when you’re not working. For anyone still paying off student loan debt, disability insurance is a must-have so you don’t fall behind on your loan payments.

Why people with student loans should buy long-term disability insurance

Long-term disability insurance is important for a lot of people — many of us can't afford to go without a single paycheck, let alone go months or years without getting one. Even emergency funds only go so far. But disability insurance is particularly important for people with student loans, especially new grads. Why?

  1. The student loan burden is frontloaded. According to research by Payscale, graduates one year out of school pay around 30% of their income to their student loans. Ten years after graduation, that number drops to 10%. For recent grads, that means it’s easy to fall behind early on. It’s hard enough to pay off student loans, and the last thing anyone needs is to be behind the 8-ball when their payments are highest.

  2. Pay is low early in careers. High expenses and low income mean missteps are even more costly. A disability insurance policy guarantees that you have some money coming in if you’re disabled, and even if you earn a low salary, some money is better than none.

  3. Student loan debt is at a record high. American student loan borrowers have a collective $1.4 trillion in debt. And it’s not just your four-year university attendees; enrollment in postsecondary education, like medical school, has been on the rise in recent years. Doctors and lawyers may be high earners one day, but until then they have relatively low pay and relatively high student loan debt.

Just like student loans are an investment in yourself, so is long-term disability insurance. You’re protecting your most valuable asset – your ability to make money – and taking a big risk by not having the protection you need, especially while your debt is so high.

Student loan disability riders

A standard long-term disability insurance policy will help cover all of your expenses if you become disabled. You apply for a policy, including a specified length of time (the benefit period) and coverage amount (up to 60% of your net income), and you can use the benefit for whatever expenses you see fit.But when it comes to student loans, a student loan disability rider can give you a little bit of extra protection.

An insurance rider is a tweak to your policy to customize it to fit your needs. In this case, for a small addition to your monthly premium, a student loan disability rider adds on coverage to the benefit amount that goes toward student loan payments. There are some caveats to student loan disability riders:

  • Coverage is usually capped at somewhere around $2,000-$2,500 a month.

  • The student loan benefit goes directly to the provider, not the beneficiary.

  • There may be limits on the degrees/professions that qualify for a student loan disability rider.

A student loan disability rider is an affordable addition to a policy – popular insurer Guardian offers riders starting at $5 a month – and can work well for someone with high student loans who wants to make sure there’s dedicated protection going to that debt.

Total and permanent disability discharge

If you’re a borrower who got your loan from the federal government, you have another option to avoid falling behind on your loans if you become disabled: a total and permanent disability (TPD) discharge.A TPD discharge applies to the following public loans:

  • William D. Ford Federal Direct Loan (Direct Loan) Program loan

  • Federal Family Education Loan (FFEL) Program loan

  • Federal Perkins Loan (Perkins Loan) Program loan

  • Teacher Education Assistance for College and Higher Education (TEACH) Grant service

There’s a difference between being disabled for a while and being totally and permanently disabled, and the guidelines for proving that your TPD is strict. The Department of Education notes you need to have confirmation from the Department of Veterans Affairs (if you’re a vet), the Social Security Administration (if you receive Social Security disability insurance), or your doctor. Each method requires specific documentation.Still, if you have federal loans, it’s important to look into if you qualify. TPD has a huge impact on your future earnings, and you would be doing yourself a huge disservice if you didn’t do everything in your power to eliminate your debt.

Like other types of insurance, disability insurance gets more expensive the older you get. Paired with the facts that, in general, your student loans are higher the younger you are, and your pay lower, it’s never too early to buy long-term disability insurance and protect yourself.

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