One of the many benefits earned by active duty service members is the continuation of pay despite injury, sickness, or any other reasons that may cause a person to miss work. In other words, if someone has an emergency surgery with a month-long recovery, they still receive their paycheck. Same thing after the birth of a child. This scenario is not the same in the civilian workplace. Once vacation and sick days are exhausted, an employer will cease payments to employees who are not at work. We insure that risk through disability insurance, with Social Security Disability as a backup.
More than a quarter of Americans have some type of disability.[i] A disability is defined by the Centers for Disease Control and Prevention as “any condition of the body or mind (impairment) that makes it difficult for the person with the condition to do certain activities (activity limitation) and interact with the world around them (participation restrictions).”
More than 25% of 20-year-olds can expect to lose at least a year’s work from disabilities before they reach retirement.[ii] Illness, injury, or pregnancy will disable nearly 6% of working Americans for six months or less every year.[iii]
The average Social Security Disability Insurance benefit is $1,197 per month, or $14,364 per year.[iv] More than 51 million working adults do not have disability insurance beyond the Social Security’s basic coverage.[v]
Although many of us make sure to get adequate coverage of other types of insurance, disability insurance may be one of the most important. Consider the odds of having to use other types of insurance:[vi]
- Homeowners insurance: 1 in 88.
- Automobile insurance: 1 in 47.
- Long-term care insurance: 2 in 5.
The most common forms of disability coverage include:[vii]
- Short-term disability insurance.
- Long-term disability insurance.
- Business-overhead expense insurance.
- Business buyout insurance.
Disability insurance helps fill in the income gaps when you’re unable to work. Some companies offer group short-term and long-term disability insurance options, with the company paying some or all of the premium. Other employers may not provide disability insurance options at all!
Short-term disability insurance will replace wages for disabilities when wages stop and last up to six months depending on the policy. Long-term disability insurance will start paying wages after a waiting, or elimination, period, which is often six months. The length of time long-term disability is in effect varies, too, from two years or five years and even up to age 65. Disability insurance will replace 50-70% of wages.
Having disability insurance is not as urgent as life insurance or health insurance but doesn’t fall too far behind. The default option for disability insurance is usually whatever the employer offers.
Veterans must avoid complacency and select both short and long-term disability coverage through their employer or private alternative or a combination of both. Coordinate benefits, too. Insurance is not as effective if a short-term policy stops paying after 12 weeks, but the long-term policy doesn’t start until six months into a disability.
Making the choice
Here are some questions to consider when evaluating and disability insurance options:
How long do you expect to work? Are you close to retirement, or are you just starting out in your career? Are you your family’s provider?
Does your employer offer disability insurance? When does the policy become effective? When are premiums paid, before taxes or after taxes? Is the insurance portable? Can you take it with you to another job?
How does your policy define disability? Some define disability in different ways, such as a complete inability to work or an inability to perform your specific job duties.
If you have any questions about disability income insurance or would like help reviewing your existing coverage, feel free to send me a message!
If you have any questions or would like to learn more about developing strategies to pursue a prosperous and safe future, contact me today at Derek.Merkler@Parsonex.com! You can also visit my website to learn about how I help our service members and veterans plan for and achieve financial independence.
My blog discusses a myriad of financial topics and challenges, book reviews, and commentary on current events in the financial world to benefit our military and veteran community. I attempt to be as thorough as possible when examining each subject but can never account for every possible scenario. Please remember to consult with your advisers for advice on your particular situation. Thank you for reading!
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