Confusing, boring and expensive. Those are just a few of the words people, especially millennials, use to describe disability insurance. For those reasons, we tend to neglect it, yet it is one of the most crucial types of insurance to have.
Consumer advocates agree that disability insurance is essential for people to protect themselves from unexpected illness, accidents or other problems that prevent them from working and earning income. According to U.S. News Money Senior Editor Kimberly Palmer, a 2013 Social Security Administration estimate showed that the average 20-year-old worker faces a three in 10 chance of being disabled at some point before age 65. However, Kathleen Elkins of Business Insider cites Bureau of Labor Statistics data from the following year that had just 39 percent of private industry workers taking part in short-term disability insurance (that which covers periods lasting less than six months) and 33 percent in long-term disability (which covers the duration of the disability or until retirement).
“It’s one of the biggest things people overlook,” said Certified Financial Planner and Author of “Work Your Wealth” Mary Beth Storjohann to Business Insider. “They think, ‘It won't happen to me,’ but the stats tell a different story.”
Lindsey Pollak, Gen Y career expert and spokeswoman for The Hartford Financial Services Group, noted to U.S. News & World Report that most disability claims don’t even come from your typical “injuries.” Instead, she gave the example that the No. 1 cause for a disability claim from women was actually pregnancy, while mental health issues like anxiety, depression and stress are some of the fastest-growing categories.
Do you have enough?
Now that you know how crucial disability insurance is, it’s time to figure out what your current coverage is, if any. According to Pollak, millennials generally tend to opt out of disability insurance for just that reason — it is optional.
Therefore, your first step should be looking into whether or not your employer offers disability insurance. Stephen Brobeck, executive director of the Consumer Federation of America, informed Palmer in 2013 that only about one-third of employees had access to disability insurance at work; but if you do, it is the best option, because it is considered a group plan and is much more affordable. Most plans cover about 60 percent of your income.
On the other hand, if your employer doesn’t offer it, you are self-employed or you work part time, you still have options. Pollak recommended going through a professional association such as the Freelancers Union, because it will cost about the same as employer-offered coverage — about $250 a year, depending on the provider.
“Probably the biggest misconception is that this is expensive. … People tend to wildly overestimate how much it costs,” Pollak said.
The SSA also offers disability benefits, but there are many stipulations and it typically pays out an average of just $1,129 per month. Private plans are also an option, though not as cost-effective. Still, Elkins recommends supplementing any policy with additional private policies, which will end up replacing closer to 85 percent of your income.
“Sometimes, spending money now means saving in the future,” she says.
And it’s not just money you’ll be saving. A 2013 report from the Consumer Federation of America and Unum found that among 400 disability insurance recipients surveyed, 77 percent said their benefits helped them avoid tension with their spouse or partner, and 68 percent said their health would have suffered even more without the benefits.
That said, disability insurance safeguards a lot more than just your financial future. Take the first step in making sure you are protected and talk with your employer or financial planner today.