Guest post by Chloe Moore, Founder of Financial Staples
Disability Insurance is often one of the most overlooked and valuable types of insurance. In fact, more than 1 in 4 of today’s young adults will become disabled before reaching retirement age according to the Social Security Administration. The most common reasons for disability claims are musculoskeletal disorders, cancer, pregnancy, and mental health issues. With personal savings at an all-time low, household debt at an all-time high, and rising medical costs, the need for income replacement is more important than ever. Losing the ability to earn an income – your most valuable asset in your working years – can be detrimental to you and your family.
What is Disability Insurance?
Disability insurance provides periodic payments that can help replace your income if you are unable to work because of an illness or injury. This insurance can cover anywhere from 50% to 70% of your income and includes both short-term disability (STD) and long-term disability (LTD) benefits.
- Short-term disability insurance provides coverage if you’re out of work for a brief period (typically for up to 90 days) and often has a one week waiting period before your benefits begin. Some employers offer short-term disability benefits or allow you to accumulate sick days as a substitute.
- Long-term disability insurance pays benefits for an extended period of time (usually until you reach retirement age) and often has a 90-day waiting period. In cases where your employer offers both short-term and long-term disability insurance, your long-term disability insurance benefits may start when your short-term disability benefits end.
An adequate emergency fund will help protect you from the need for short-term disability coverage or assist with living expenses while you’re waiting for your benefits to kick in.
What if You’re Self-Employed or Your Employer Doesn’t Offer Coverage?
Disability insurance is critical if you are self-employed. Some professional and trade organizations offer group policies for business owners that are less expensive than individual policies. Be sure to consider the coverage details, as the benefit amount may be capped, or the policy may have limitations on what it will cover. In some cases, your employer may not offer coverage or, if you are a high-income earner and work in a specialized field, the coverage through your employer may not be enough. An insurance broker can help you assess your options for individual or supplemental coverage. It’s also worth speaking with a financial planner to ensure you’re getting the right coverage for your situation and with a tax professional to learn how to pay premiums so the benefits are tax free.
Chloe Moore is the Founder of Financial Staples, a fee-only comprehensive financial planning firm based in Atlanta, GA and serving clients nationwide. Her firm helps entrepreneurs and tech employees align their finances with their values and purpose so they can live their greatest lives. Chloe can be reached via email at email@example.com or you can learn more about her firm by visiting financialstaples.com.