Disability insurance is probably one of the most important types of insurance that people don’t buy enough of. Why? Some say it is too expensive, they don’t need it, they have it at work, they will never get disabled and any other excuse they can think of. I’d like to share some reasons on why I think anyone working should have disability insurance or purchase more of it.
What is disability Insurance?
Before I start, I’ll share what disability insurance is. Disability insurance is generally split between two types, short and long term. Short term disability will usually pay a benefit after you have been out of work for sickness or injury for 7-15 days. Benefits will pay out up to 24 months maximum but usually much shorter than that. Long term disability will pay benefits after a period of 90 days can pay a benefit up to age 67 in some cases.
Deciding on Disability Insurance Coverage: Do you really need it?
The initial phase of deciding on coverage is to ask yourself a few questions:
- If I can’t work tomorrow, how long can I live without an income?
- What is the minimum income I need to pay my monthly bills?
- If I don’t have any income, who will pay my bills?
- How much coverage do I have at work?
- Am I eligible for other state programs?
- How much do I have in savings?
- How long will those savings last without any other income?
What are the odds of you becoming disabled?
I won’t bother with the official stats, but think about your day to day life and possibilities where you could hurt yourself.
- I hate to admit it, but New Jersey has some of the worst drivers. If you have spent any time on the Garden State Parkway or AC Expressway you quickly notice that some people are just crazy. You can drive as slow or safe as you want, but sometimes other people will cause accidents and may cause you some physical injury.
- Cell Phones and texting: Same as above. People are distracted while driving so accidents from texting and cell phones are becoming more frequent.
- Drunk drivers and other impaired drivers
- Normal accidents like slips, trips and falls.
- Cancer and other sicknesses
My point is, if you think about it, you can probably name many occasions where you have had a close call while driving or otherwise. You only need one bad day to put you out of work for a long time.
Coverage at work:
If you are lucky enough to have coverage at work, see how much you have. It is likely up to 60% of your income to a maximum of $5,000 per month of benefit or something similar. Keep in mind that the benefits will be taxable.
Example 1: Annual income $50,000
$50,000 x 60% = $30,000
$30,000 – $25% in taxes = $22,500 disability income annually
Example 2: Annual income $110,000
$110,000 x 60% = $66,000 – This will max out the benefit so actual amount will be $60,000($5,000 monthly)
$60,000 – 25% taxes: $45,000 disability income annually
Health Insurance Considerations
If you are on disability from work, do you think your health care expenses will go up or down? UP, of course!!! Additionally, you will now be on COBRA or New Jersey Continuation coverage so your employer will not be contributing to your insurance premiums any more. The typical single premium for COBRA in New Jersey is around $500 per month for a single and around $1500 a month for a family. Don’t forget all your extra copays and prescriptions you will now need!
Who buys disability insurance coverage?
Take a hint from the professionals that buy the most disability coverage, physicians and attorneys. They may buy coverage because they have a higher income but I think it is because they see the devastating effects a disability can have on a daily basis. They realize that it can happen to anyone and it doesn’t take much to put you out of work for a long time.
Most but not all employees in New Jersey are eligible for New Jersey short term disability. This program will pay 66 2/3 benefit to a maximum of $559 per week for 26 weeks.
Some may qualify for Social Security Disability benefits but it can be very difficult to qualify for.
People who may not benefit from disability insurance
If you have enough savings or assets that you can sell off to last you many years without income, than disability insurance may not be a good buy for you. You can essentially self insure so the insurance may potentially be money wasted.
Deciding if you need coverage
This was a very brief summary on disability insurance coverage, but it should at least get you thinking about why or why not disability insurance is right for you. If you stopped working tomorrow and couldn’t pay your bills, you probably need the coverage. If you already have some coverage through work and it is still not enough to cover your bills, than you can always purchase a small policy to supplement that coverage.
Please contact me here for a disability insurance quote or to do a full review on your options.
I also encourage you to do more research at the Council for Disability Awareness.