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Why life and disability insurance go together like PB&J

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6 mins

Bad things happen. Sometimes negative events exact a substantial cost.

The worst thing that can happen to you is dying unexpectedly before you’ve reached your life expectancy. The next worst thing is suffering an injury or illness that limits or prevents you from working and earning an income.

Not only do they cause emotional stress, but death and disability often cause financial hardship from losing the income of the individual who dies or becomes disabled.

Only time and support can heal the emotional trauma. But you can ensure that your loved ones are protected financially by buying life and disability insurance.

In general, if you need one — and chances are you do — you need both. Life insurance does not fulfill the need for disability insurance and vice versa. Life and disability insurance complement each other like peanut butter and jelly; they do not replace the other.

Life insurance vs. disability insurance

Life and disability insurance both offer unique benefits that the other simply cannot. There are, however, a number of similarities between these two types of coverage.

  • They offer financial protection against unexpected events.
  • Individual policies are underwritten, which includes taking a medical exam.
  • It’s less expensive to buy both types of insurance when you’re young and in good health.
  • They are often offered as group policies, either as an employee benefit or as part of an organizational membership.
  • Even with group policies available, it’s often recommended to also buy an individual policy to obtain more comprehensive coverage.

Due to these similarities, you may think that you will be just fine as long as you have one of them. That's rarely the case though.

Who needs both life and disability insurance?

You should have both life and disability insurance if any of these describe you:

  • You earn an income.
  • You own a business.
  • You have people who depend on your income to live.
  • You are a primary caregiver to children, an older adult, or a dependent with special needs, even if you don’t get paid for those services.
  • You have debts that will still need to be repaid in the event you die or become disabled.

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Can I get by with just one if I have savings or don’t have dependents?

The best time to buy life and disability insurance is right now, before you need it, and at a time when you’re as young and healthy as you’re ever going to be.

Think about this scenario: You have long term disability, but not life insurance. You’re diagnosed with cancer in a few years, which causes you to miss substantial time from work. Your condition is serious enough that you no longer qualify for life insurance. So while you have income replacement from your disability policy, you have no protection if the condition becomes fatal. And the savings you were counting? That’s probably going to erode paying the out-of-pocket expenses for your treatment.

Now imagine the same scenario, only you have life insurance but no long term disability insurance. You would have no income replacement for the time you miss work. You use your savings to pay your bills, and let the medical bills pile up. If you then pass away, you’ll have to use a portion of the policy’s death benefit to pay those medical bills instead of replenishing your savings.

What often causes the most financial distress is the amount of debt still owed. One survey shows that 73 percent of consumers die with outstanding debt that averages $61,500 when mortgage debt is included; $12,900 if you don’t include mortgage debt.

Some people mistakenly believe that debts are retired or forgiven when a person dies or becomes disabled, but this is rarely the case.

If you’re single with no dependents, you may think you don’t need disability or life insurance.

If you can’t work due to injury or illness and you don’t have disability insurance benefits, will others have to financially support you during your disability period? Who will care for you if your disability is permanent?

Keep in mind that in the event of your death, there will likely be expenses related to your funeral and settling your estate. A term life insurance policy can make sure those costs can be covered without burdening parents or other relatives.

What about life insurance with a disability rider?

Many term life insurance policies have disability riders that can help in the event you become ill or injured. A rider may pay a monthly benefit to the insured person who suffers a disability that affects their ability to work and earn an income. There is also a waiver of premiums rider that keeps your life insurance intact without paying premiums during a period of disability.

It’s not a bad idea to tack on a disability rider to your life insurance policy if one is available. You can obtain a little extra coverage for a little added cost.

But you shouldn’t consider a disability rider as a complete replacement for a separate individual long term disability policy. Life insurance disability riders are not designed to provide comprehensive coverage that a personal disability policy can provide.

Disability riders on life insurance typically pay less in benefits, have shorter benefit periods, and may have a stricter definition of disability than what you can receive on a standalone disability insurance policy.

Can I buy life and disability insurance together?

Many carriers offer both life and disability insurance, and many independent agents also provide both policies.

One of the advantages of applying for both simultaneously is only having to go through one medical exam. The results of the same medical exam can be used for underwriting life and disability insurance.

Though you will still have to fill out two applications, you will only have to track down medical records and other documentation once. Instead of going through the application process twice, you only have to deal with it one time.

The less paperwork, the better, right?

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published January 1, 2020
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