Shopping for disability insurance doesn’t sound fun, but it’s one of the smartest ways to protect yourself and your family financially.
Disability insurance is like insurance for your paycheck if you are unable to work.
According to Guardian Life, “more than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they retire.” Illness causes 90% of disabilities and injuries accounts for the other 10%.
What is short-term disability insurance
You’ve probably heard of short-term disability (STD) through your employer. Short-term disability insurance covers lost income for about three months due to illness, injury, or pregnancy and recovery from childbirth. California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require employers to offer a form of short-term disability insurance.
Employer-provided short-term disability insurance may be offered as part of your benefits package at little or no cost. These policies are “guaranteed issue” so you don’t have to take a medical exam to get coverage.
The short-term disability insurance you get through work can replace up to 80% of your gross income, but is usually less — around 50-60%. The payments generally only last between three and six months, usually only three months. Also, you may be taxed for disability income if your employer covered part or all of the premium. If you leave the company, you’ll lose your benefits.
While employer-provided disability insurance is a nice benefit to have, coverage is obviously limited. If you financially support anyone other than yourself — or your regular expenses eat up most of your paycheck — you probably need a private disability insurance policy, too.
What qualifies as short-term disability
Every short-term disability policy will outline what it covers specifically, but generally any illness or injury that disables you from performing your job will be covered.
According to Unum insurance, the top five reasons people submit claims for short-term disability are:
1. Maternity leave
2. Injuries
3. Joint disorders
4. Back disorders
5. digestive disorders
Short-term disability vs. long-term disability insurance
Don’t assume your employer-sponsored short-term disability insurance policy is enough to replace your income. Take a few minutes to read through the coverage details and figure out whether you need more.
A long-term disability insurance policy usually doesn’t kick in until at least 90 days after you become disabled —referred to as the waiting or elimination period. Long-term disability effectively picks up where your short-term policy leaves off.
Short-term disability | Long-term disability |
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Data from Guardian Life Insurance
Who needs disability insurance
To figure out whether you need disability insurance, the question to consider is: If you become ill or injured, how will you earn income to pay your bills? If you don’t know, then you need disability insurance.
Life Happens, a nonprofit life insurance education agency, provides a free disability insurance calculator.