Welcome to adulthood.
You have a job. You have an income. You have freedom and independence. You’re laying the foundation for a bright future.
You also have responsibilities. You have things (and possibly loved ones) to protect.
A secure source of income is one of the most important parts of your life. It gives you freedom, independence, and opportunity.
It can be easily lost or diminished by an injury or illness that prevents you from working. Suffering a disability is possible even for people in their 20s. And there’s a good chance - a one in four chance to be exact, according to the Social Security Administration - that you will become disabled at some point before reaching retirement.
Disability insurance covers the potential loss of income caused by injury or illness. If you are unable to work because of a covered disability, the policy will replace part of your income. You will receive these benefits for as long as you’re disabled or up to a maximum period of time spelled out in the policy.
Having disability insurance means being able to buy food, pay bills, and cover household expenses while you’re unable to work.
In addition to these reasons, here are six more that people in their 20s should buy disability insurance.
1. It'll never be more affordable
The cost of disability insurance is based on how likely you are to file a disability claim for benefits. Age and health are determining factors.
As a healthy, 20-something-year-old, you pose the least amount of risk. Therefore, your premium will be lower today than it will at a future date. Healthy people carry less risk to disability insurers than those with chronic illnesses or adverse health factors that can develop later in life.
2. You have dependents
Getting married and having children necessitates having disability insurance. After all, if you have children, your income is helping cover living expenses such as food and clothing. Missing a few months or more of paychecks could strain the family budget.
Even if you have a working spouse, chances are your combined lifestyle is based on both of your incomes. If one income is lost temporarily to disability, can you afford the mortgage and other bills?
How your surviving spouse benefits
Some people neglect the need for insurance because they have a spouse with a successful career who they believe can live comfortably on their own.
But even if this is true, chances are your combined lifestyle is based on both of your incomes. If yours is lost to death or disability, what will happen to your significant other? Can he or she afford the mortgage on your house on one income? If you are disabled, can your spouse continue paying your student loan debts that will still be owed? What about the aforementioned funeral and estate settlement costs?
Also, keep in mind that a widowed spouse may need significant time off work to grieve. The spouse of a recently disabled person may also need to take time off to help through the transition. In either case, this may not be paid time off. Not only can insurance benefits help replace some of your lost income, but they can also cover the time-off needed by your spouse or significant other.
Children will need more than you might realize
People with children typically do not need to be convinced of the need for life insurance. But they may underestimate how much is needed, especially when it comes to disability insurance.
Basic living expenses like food and clothing will only increase as they get older. The amount of your disability insurance should reflect this.
Not only that, but you also want to ensure that your disability insurance can help pay for college, factoring in the likely increases in tuition costs.
3. You have student loan debt
A long term disability insurance policy can help you make your monthly student loan payments in the event of a disabling accident or illness.
In some cases, you may be able to get rid of your student loan debt if you suffer a career-ending injury or illness. You can receive what is called a total and permanent disability (TPD) discharge if:
- Your student loans were part of a federal government loan program, such as the Federal Perkins Program or the Williams D. Ford Federal Direct Loan Program; AND
- You can prove that you are totally and permanently disabled by providing the U.S. Department of Education with documentation from the Department of Veterans Affairs (if you are a veteran), Social Security Administration, or a physician.
If any or all of your student loans originated from a source other than the federal government or you can’t prove permanent disability, then you will still be responsible for student loan repayment.
Even if you declare bankruptcy following a disability, student loans are very difficult to discharge.
4. You bought a house
If you own a house, your mortgage payment is likely your biggest monthly expense. Miss a few paychecks while out with a disability, and you’ll get behind on your payments. Too many missed payments results in foreclosure.
You don’t want to move back home
Unlike some of your peers, you enjoy living on your own. Sure, the food isn’t as good as it was at home, but the privacy and independence more than make for that.
Having your own place requires income. Losing your paycheck means being unable to pay rent, your mortgage, or utilities. If that happens, you’re likely moving back home until you’re back on your feet.
That’s what could happen if you can’t work because of a short-term or long-term disability.
But you can avoid this scenario by having disability insurance. If you suffer, say, an injury from a car accident or a mental health condition that prevents you from working, a disability insurance policy can replace enough of your income to ensure you can recuperate in your own place and not under your parents’ roof.
5. You can increase your coverage later
One of the concerns about buying disability insurance in one’s 20s is knowing that your income will likely increase in the future. After all, the amount of coverage and the monthly benefits you can receive are based on your income at the time of policy issue. What good is buying a policy based on your $30,000 income at age 25 if you have a disability years later while making twice that amount?
But as discussed above, you’d much rather have your policy underwritten in your 20s than later in life.
The solution is to make sure your disability insurance policy includes a future purchase option. This option may also be referred to as a future increase option, a future insurability option, a benefit update rider, or a similar name.
This feature, whether provided as an optional rider for an additional cost or as part of the base policy, enables a policyholder to increase the amount of coverage at a future date without having to undergo additional underwriting. The added coverage will increase your premium if you elect to exercise the option.
A future benefit increase is typically triggered by an increase in income. Insurers often enable the policyholder to bump up their coverage after a certain number of years. Some provisions allow you to increase coverage due to a loss of group coverage or after a major life event.
If you happen to be reading this and you’re no longer in your 20s, don’t worry. It’s not too late. These same concepts apply to you as well. Look into insuring your income sooner rather than later.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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