Importance of disability insurance when you are young and healthy
Disability insurance is also known as income protection or paycheck protection because its purpose is to replace a percentage of your income. When you can’t work because of a severe illness or injury, disability insurance helps cover out-of-pocket expenses. The difference between it and other health insurance plans is that disability benefits are paid directly to you.
A common misconception about disability insurance is that it is only for the elderly. But the prime time to get paycheck protection is BEFORE your health begins to deteriorate, aka while you are still young and healthy! There are a ton of benefits of disability insurance – and the best way to maximize your return is to get it early.
Think about it this way: if you are diagnosed with a disability, you still have work years that will be affected by said disability. Because if we have 10-, 20-, or 30-years’ worth of our careers ahead of us, that means we’re risking 10, 20, or 30 years of lost income if something were to happen and we were unable to work.
Do you have enough emergency savings to pay all of your bills until you can work again, however long it may be? If not, you need to find the best disability insurance for you.
The most important financial product you didn’t realize you needed
Did you know that disability insurance is the most important financial product you didn’t know you needed? You don’t have to take our word for it. Money Under 301 wrote the article, and we are just over here saying “ditto.”
We could take the time to include a thousand more sources that say the same thing; instead, we thought you’d be more interested in learning about why the benefits of disability insurance are so significant.
Different types of disability
The young and healthier you are, the less you think that disabilities can one day affect you. However, many types of disability, like cancer, heart attack, diabetes, back pain, injuries, and arthritis, can surprise you.2
Types of disability insurance
There are different types of disability insurance to choose from, which depend on your needs and your chances of one day becoming disabled, whether it be a short or long period. Some of the most common types of disability insurance are:
- Long-term disability insurance
- Short-term disability insurance
- Mortgage disability insurance
- Supplemental disability insurance
- Social Security disability insurance
- State disability insurance
- Workers’ compensation
For the purposes of this article, we are going to dive into the most popular types of income protection.
In order to find the best income protection plan for you, it’s important to understand your financial constraints in the event that you become injured or fall ill. If you were unable to work for a period of time, how long would your savings cover your out-of-pocket expenses? One month? Three months? Six months? What about any additional medical expenses?
To understand what level of coverage you need, you’ll need to calculate how much money is required to pay your bills, loans, and other expenses while you are not working. Once you have a good understanding of your monthly expenses, it’s time to take a serious look at your emergency savings. The goal here is to determine how long your savings could cover your expenses if you were disabled and unable to work for a period of time. Considering your savings and expenses, you’ll next turn to your salary. Calculate what percentage of your salary could cover your remaining expenses (after using your emergency savings) in case of a disability.
Short term disability insurance vs. long term disability insurance
Short-term and long-term disability insurance are two of the most common types of income protection. So, what’s the difference?
Short-term disability insurance is precisely what it says: short. Payments only last for a few months to a year, and they can replace up to 80% of your pre-tax income. The elimination period, or time before benefits are paid out, is generally around two weeks—so you can get your payout faster than with long-term coverage. The most common types of disability that cause short-term disability claims are:3
- 25% of short-term disability claims are due to pregnancy
- 20% of short-term disability claims are due to musculoskeletal disorders that affect things like the back and spine, knees, and hips
- 8% of short-term disability claims are due to digestive disorders such as hernias and gastritis
- 7% of short-term disability claims are due to mental health issues
- 5% of short-term disability claims are due to injuries such as fractures, sprains, and strained muscles or ligaments
On the other hand, long-term disability insurance is a type of insurance you can buy that
pays out monthly benefits if you become too ill or disabled to work. The benefit period can last two, five, or ten years, or even until retirement, and the monthly benefit is up to 60% of your gross monthly income. The most common long-term disability claims are caused by:4
- Musculoskeletal/Connective Tissue Disorders and Conditions: the most common are back pain, degenerated disk, arthritis, osteoporosis, and rheumatism.
- Nervous System-Related Disorders and Conditions: the most common are Multiple Sclerosis, Alzheimer’s Disease, Parkinson Disease, Shingles, Epilepsy and Seizures.
- Cardiovascular/Circulatory Disorders and Conditions: one person dies every 36 seconds in the United States from cardiovascular disease5
- Cancer and Tumors
- The American Cancer Society estimates that 41% of men and 38% of women will develop some form of cancer within their lifetime6
- Mental disorders:
- o The most common of which are depression and anxiety.
90% of long-term disabilities result from illnesses rather than accidents.
Council for Disability Awareness, 2018
Any occ vs. own occ
While you are trying to find the best disability insurance for you, another factor to consider is whether you want your policy to include any occ (any occupation) or own occ (your occupation). Any occupation disability insurance provides benefits if you can’t work any job that you’re reasonably suited for because of illness or injury. This type of claim is much harder to prove, and it’s harder to receive a benefit. Still, it’s also generally less expensive than own-occupation disability insurance. On the other hand, own-occupation is a long term disability insurance policy that defines a disability as an inability to work at your regular occupation.
Common reasons someone is denied disability insurance coverage
There are many reasons why insurers might deny someone disability insurance coverage and the number of reasons why only increase with age. Hence, you are encouraged to get your income protected while you are young and healthy.
For starters, disability insurance is underwritten based on your perceived risk. So, if you are older and more likely to become disabled, chances are your insurance will cost a lot more if you are even approved at all. In fact, 40% of disability insurance applications are either declined, rated, or are only accepted with an exclusion.7
There are also many reasons why a person could be denied disability insurance, and they vary across age ranges and healthiness. For example, cancer or mental illness can affect the young as well as the elderly. The reality for 20-year-olds is that more than 1-in-4 of them will become disabled before reaching retirement age.8
How much does disability insurance cost?
Your insurance premium is generally based on your desired coverage and your annual salary, along with other life factors. Typically, you can expect to pay one to four percent of your income towards your insurance premium. The factors considered when calculating your insurance premium include:
- Your salary
- Your occupation
- Your age
- Your gender
- Your health history
- Your location
- Your benefit amount
- Your benefit period
When choosing your insurance plan, you should also consider planning for future expenses, such as retirement or children’s education expenses. Paycheck protection is essential because the entire idea of unplanned injuries and illnesses is just that — unplanned and unexpected.
Benefits of disability insurance
The benefits of disability insurance come into play when you have an injury or illness that limits your ability to work. This insurance covers acute diseases, including heart attack, stroke, cancer, organ failure, cognitive impairment, and serious injuries that lead to an inability to work.
What doesn’t disability insurance cover?
Disability insurance is designed to replace a portion of your income, not the entire thing. It’s also common for policies to contain exclusions, such as pre-existing conditions.
Understanding your financial constraints
In order to find the best income protection plan for you, it’s important to understand your financial constraints in the event that you become injured or fall ill. If you were unable to work for a period of time, how long would your savings cover your out-of-pocket expenses? One month? Three months? Six months? What about any additional medical expenses?
To understand what level of coverage you need, you’ll need to calculate how much money is required to pay your bills, loans, and other expenses while you are not working. Once you have a good understanding of your monthly expenses, it’s time to take a serious look at your emergency savings. The goal here is to determine how long your savings could cover your expenses if you were disabled and unable to work for a period of time. Considering your savings and expenses, you’ll next turn to your salary. Calculate what percentage of your salary could cover your remaining expenses (after using your emergency savings) in case of a disability.
7 in 10 working Americans couldn’t make it a month without a paycheck before having financial difficulties.
Life Happens survey, 2018
When should I get disability insurance?
Like we said earlier, a common misconception about disability insurance is that it is only for the aging. But the prime time to protect your income is BEFORE your health begins to deteriorate, aka while you are still young and healthy! There are a ton of benefits of disability insurance – and the best way to maximize your return is to get it early.
Deciding on your insurance needs
Disability insurance doesn’t restore your income 100%, nor does it cover additional medical expenses or long-term care that might accompany your disability. The best way to protect yourself is a combination of savings and comprehensive insurance – which should include more than just disability insurance.
Even the best paycheck protection program can leave you vulnerable, which is why the most effective safety net includes a combination of disability insurance, health insurance, accident insurance, and life insurance.
Conclusion
If you’re an independent worker or running a small business, income protection is likely super important to your work-life world. It doesn’t matter if you are young and healthy; many types of disability can affect your ability to work even if you are young and in stellar health.
If you become sick or injured and can’t work for some time (and it’s confirmed by a doctor), disability insurance is designed to cover up to about 60% of your paycheck or income. That’s why it’s sometimes nicknamed “paycheck protection.” Basically, disability insurance for small business owners helps make ends meet until you get back on your feet.
If you are ready to get a quote or learn more about protecting your income, Woligo has you covered. As a self-employed individual, your income depends on your ability to work. If you become disabled, you could lose your income. Disability insurance benefits for independent contractors help keep you — and your small business — afloat so you can focus on getting better.
Sources:
- https://www.moneyunder30.com/disability-insurance-is-it-worth-it
- https://disabilitycanhappen.org/common-causes/
- https://disabilitycanhappen.org/disability-statistic/
- https://abnetworking.org/5-most-common-long-term-disability-claims/
- https://www.cdc.gov/heartdisease/facts.htm
- https://www.cancer.org/content/dam/cancer-org/research/cancer-facts-and-statistics/annual-cancer-facts-and-figures/2017/cancer-facts-and-figures-2017.pdf
- https://www.limra.com/
- https://www.ssa.gov/disabilityfacts/facts.html