So why the low numbers when it comes to buying a disability policy? Perhaps it's because many of us don't think that we will ever experience a disability serious enough that will prevent us from working and cause our paychecks to come to a screeching halt. Because of this, many of us look at disability insurance as an unnecessary expenditure.
The reality is that nearly everything you have likely depends on your ability to earn a living. Having disability coverage to cover one of your most valuable assets shouldn't be considered “just another expense” but part of a sound financial plan. The following are a few of the most frequently asked questions regarding disability insurance:
How much should I buy?How much disability insurance you should purchase depends on your individual situation. However, according to the Insurance Information Institute, most policies pay a benefit that is 50 to 70 percent of your current income.3 And if you will no longer be able to contribute to your employer's retirement plan, you should also factor in enough disability income so that you can continue to put away money for retirement.
Is disability insurance expensive?The younger you are, the more affordable a disability policy can be. Having medical issues can also have an impact on your premiums and, depending on the severity, could mean that certain exclusions will be applied to your policy. Much like a life insurance policy, it's best to buy disability insurance when you're young and in good health.
What's best, a short or long elimination period?Every disability policy has a waiting or elimination period. This is the number of days you must be disabled before you can begin to receive benefits. A short elimination period is typically 30 days, while a longer period is 60 to 90 days. Keep in mind that during the elimination period, you will not receive any benefits, even though you are not able to work. The question you need to ask yourself is how long can you go without an income before your disability benefits kick in? Do you have enough in savings to live on for the next 30, 60, or 90 days? Keep in mind that a short elimination period will likely result in higher premiums, while a longer elimination period will be less expensive.
What's the best way to buy a policy?
If you are offered an employer-sponsored group disability policy through work, look into it. Generally speaking, these types of group policies can be an easy and affordable way to get coverage without having to go through a lengthy underwriting process or a medical exam.* However, it's important that you know just how much coverage you have because it may not be enough. If that's the case, ask your employer if they offer any additional supplementary coverage that you may be able to purchase. If not, then consider buying a supplementary policy from an insurance agent or broker.
We hope that by answering these questions that you'll feel more confident in getting the coverage that you need today.
*Check with your employer to learn more about what may be required to apply for coverage, as every policy has different underwriting guidelines. Depending on the policy, you may be required to complete a medical questionnaire and undergo a medical examination.
2. LIMRA 2020 Disability Insurance Awareness Month Fact Sheet