At least 51 million working adults in the United States are without disability insurance other than the basic coverage available through Social Security.
These working folks are facing a growing crisis due to their lack of adequate disability coverage. You may think that disability payments from the government can help you get through tough times should you become partially, temporarily or permanently disabled, but government payments are extremely low.
Today, many people are faced with an absence of emergency savings, rising medical costs, and an overall trend of fewer employers offering benefits to workers.
This has created a critical blind spot for many workers and their families. Without some kind of income protection, more workers are experiencing severe financial difficulty if they need to miss work due to illness, injury or pregnancy.
The Social Security Administration estimates that that a 20-year-old has a 26.8% chance of being disabled for at least 12 months before reaching retirement at age 67.
The average Social Security disability benefit for a worker as of February 2019 was $1,234 a month. That equates to $14,808 annually – barely above the poverty guideline of $12,490 for a one-person household, and below the guideline of $16,910 for a two-person household.
But there is a five-month waiting period for benefits, meaning that the Social Security Administration won’t pay you benefits for the first five months after you become disabled.
The amount of the monthly benefit after the waiting period is over depends on your earnings record, much like the Social Security retirement benefit.
Obviously, the average monthly disability benefit would not be enough to cover your basic expenses – and in many cases wouldn’t even cover your mortgage or rent payment. On top of that, because many people lack any substantial emergency savings, few could go five months without a paycheck or other income.
How to avoid financial disaster
To avoid this type of financial calamity, disability insurance is a wise choice.
An individual disability insurance policy can be purchased even if you have a separate group disability policy through your employer.
Disability policies will pay you if unable to perform the duties of your occupation due to sickness or injury. There are two types of policies:
Short-term disability insurance – This replaces a portion of your paycheck for a short period of time. Think three to six months. Most people get one of these policies through their employer, and they may cost more than they are worth.
Long-term disability insurance – This provides coverage if you’re out of work for a longer period, like years or decades.
All long-term disability policies require you to be disabled for a certain period of time before payments start. Most commonly, these periods are 30, 60 or 90 days, but there are longer waiting periods of 180 and 365 days also available.
The longer the waiting period, the lower the premium. So, if you do opt for a longer waiting period, you’ll need to self-fund your expenses during that time.
There are many nuances in disability policies, and they vary from insurer to insurer. For more information on disability insurance and the benefits of having it, please contact us and we will be happy to assist you.