You probably already understand the importance of having life insurance. The proceeds from a life policy can help cover your family’s current expenses and may provide a cushion for the future if you die prematurely. But another kind of coverage—disability income (DI) insurance—is often ignored or neglected. And that’s a mistake, because DI insurance can be even more vital than life insurance in maintaining a family’s financial well-being. A new white paper from the Council for Disability Awareness, an independent nonprofit group, provides these six startling facts.
1. More than one in four of today’s 20-year-olds will become disabled before they retire. (Source: Social Security Administration, Fact Sheet, March 18, 2011)
2. Some 8.5 million disabled U.S. wage earners were receiving Social Security Disability Insurance (SSDI) benefits at the end of September 2011. (Source: Social Security Administration, Office of Disability and Income Security Programs)
3. Ninety percent of new long-term disability claims are the result of an illness, not an accident, and fewer than 5% of claims are work-related. (Source: 2011 Council for Disability Awareness Long-Term Disability Claims Study)
4. The average long-term disability claim lasts 31.2 months. (Source: 2010 GenRe Disability Fact Book)
5. New applications for Social Security Disability Insurance (SSDI) benefits increased 27% from 2008 to 2010. (Source: Social Security Administration, Office of Disability and Income Security Programs)
6. About 100 million workers lack private disability income insurance. (Source: Social Security Administration, Fact Sheet, March 18, 2011)
If you don’t have DI insurance, either through a policy from your employer or one you’ve bought on your own, you can choose from among a wide array of products whose costs and benefits vary widely. Here are several factors you’ll need to take into account.
How a policy defines “disability” is crucial. The best policies pay benefits if you can’t work in your chosen profession, and they don’t consider the nature of an injury.
DI insurance policies generally require a waiting period before paying benefits, and a shorter waiting period normally translates into higher premiums.
Typically, a policy will state how long and under what circumstances it will pay disability income benefits. It could, for example, provide benefits only until you qualify to receive Social Security retirement benefits.
If you opt for a noncancellable policy, the insurer can’t drop you off its rolls if your health declines.
Finally, don’t be seduced by the low costs of a fly-by-night operation. You’ll be better off opting for an experienced company with a good reputation.