Do you know someone who was seriously injured, maybe from an accident or illness? Could they go to work? Could they pay their bills if they were not working?
What if that were you? It would be stressful to not have money to pay your bills.
The good news is there is insurance you can purchase that covers that type of risk; it is called disability insurance. Disability insurance provides payment to replace earnings during times when you cannot work due to illness or injury.
Some questions regarding disability insurance are listed below. Once you have had time to think of your response, click on the question to see the answer.
Anyone who works and has people who rely on their income should consider disability insurance. It is important to have money available beyond your emergency fund to cover expenses. The average long-term disability lasts 2.5 years and can be incredibly expensive to manage.
Disability pays you income while you are out of work. Most policies cover 40% to 65% of your income in exchange for premiums.
There are two types of disability insurance: short term and long term. The table below explains each.
| Short term | Long term | |
|---|---|---|
| Coverage | Covers 60-70% of your income. | Covers 40-60% of your income. |
| Coverage Length | Three to 12 months. | Five years or longer. |
| First Payout | Payment is received around two weeks after your disability. | Payment is received three to six months after your disability. |
The younger and healthier you are, the easier it is to qualify for a policy. But as you age, premiums increase. And if your health gets worse, you may find it hard to qualify for an affordable policy at all. The cost to purchase disability insurance is usually 1% to 4% of your income.
Jasmine is a single mom who has a steady income but is worried about paying bills if something should happen to her. She is considering the purchase of long-term disability insurance.
Question
What advice would you give Jasmine about purchasing long-term disability insurance?
Long-term disability pays you income if something happens to you and you can no longer work. While the chances of this happening may be low, a disability can last a long time; and not having money available can be financially devastating. Anyone who works and has people who rely on their income should consider disability insurance.
