May means one thing: It's Disability Insurance Awareness Month.
Disability insurance replaces up to 60% of your income if physical injury, medical illness, or mental health struggles leave you unable to work and earn a living. It's insurance for your greatest asset – your income.
But it's insurance for more than just your income. It's financial security for your lifestyle.
If you can't work, it ensures the mortgage or rent can keep getting paid. It gives you money to buy groceries, diapers for your newborn baby, and every other expense that gets thrown your way.
Debating if disability insurance is necessary? Consider the following:
- You're more likely to need disability insurance compared to life insurance, which doesn't cover disabilities. According to the Social Security Administration, today's 20-year-olds have a 1-in-4 chance of becoming disabled before retirement. By contrast, a 25-year-old male has a 1-in-6 chance of dying before retirement, while a 25-year-old female has a 1-in-9 chance of dying before retirement.
- Just 19% of US employees have defined paid family & sick leave benefits, and you can't rely on government programs. FMLA is an unpaid benefit, and 40% of the workforce does not qualify. Workers' comp only covers injuries and illnesses directly related to your job, and Social Security Disability Insurance requires your condition be severe enough that it lasts for 12 months and/or result in death.
- How long could you last without an income? 48% of home foreclosures are due to disability compared to 3% due to death. 62% of personal bankruptcies are due to medical problems. 70% of American's couldn't make it a month without a paycheck before experiencing financial hardship. 30% of Americans couldn't cover a $400 emergency expense with cash savings.
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Disability insurance basics
There's several other disability insurance basics to know. First being that disability insurance will often cover any physical injury, medical illness, or mental health issue that impacts your ability to work and earn a living. These could be directly related to your job or have nothing to do with your job.
Next being that there's two types of disability insurance: long and short term.
Long term disability insurance
Long term disability insurance is intended to cover more severe injuries and illnesses that will take some time to recover from or may even be permanent. The most common reasons for long term disability insurance claims include things like cancer, severe depression, heart attack, stroke, musculoskeletal disorders, and injuries like fractures or muscle strains.
Long term disability insurance generally replaces between 60% and 80% of your monthly income. Benefits can last 2, 5, or 10 years, or until the ages of 65 or 67.
This type of disability insurance will often include waiting period options of 30, 60, 90, 180, or 365 days.
Short term disability insurance
On the other hand, short term disability insurance is better suited for temporary injuries or illnesses that may only take several months to recover from. An example would be a broken hand. Short term disability claims are most often due to pregnancy, digestive disorders like hernias or gastritis, anxiety, and sprains to muscles or ligaments.
In terms of income replacement, short term disability insurance often replaces between 40% and 60% of a policyholder's income. Benefits often last between three and six months, but can last as long as two years.
Finally, short term disability insurance usually carries waiting period options of 1, 7, 14, or 30 days.
Disability insurance cost
How much will disability insurance cost you? The annual cost of disability insurance will typically be between 1% and 4% of your annual income. Premium is paid monthly.
Another general rule to follow is that you should expect to pay between 2% and 6% of your policy's monthly benefit amount in monthly premium.
The cost of disability insurance is all about the risk you present to the insurer. For example, a roofer is far more likely to get injured compared to an account so a roofer might pay a higher premium rate. Or, an older consumer who smokes and has some negative health history will likely pay more than a younger, non-smoker.
Your income is also heavily-tied to how much you will pay for disability insurance because benefits replace a portion of your income. The more money you make, the more you'll pay for disability insurance.
How to apply for disability insurance
If you're interested in disability insurance, you should first check to see if your employer is offering disability insurance as an employee benefit, otherwise known as group disability insurance.
This is a great first option because group disability insurance generally will have the same benefits and premium costs for all of its members, regardless of each member's respective occupation, income, health history, and lifestyle habits.
Otherwise, you'll have to apply for an individual disability insurance policy, which you can do yourself or through an insurance agent.
Breeze has streamlined the disability insurance application process and makes it possible to get a quote in seconds and apply in minutes, all entirely online.
Video library: Disability insurance
If you prefer to watch video content, Breeze has put together an extensive library of videos all about disability insurance.
Check it out below and be sure to cycle through the different videos: