Do You Have Long-Term Disability Insurance?
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With open enrollment period for general health insurance quickly approaching — and the fact that COVID-19 has made this a “unique” year for health issues and health care — we thought it would be a great time to talk about long term disability insurance.
Do you have long-term disability insurance through your employer and/or through an insurance company? Have you ever had to take advantage of it? Are you wondering if you should get long-term disability insurance this year?
We talked to Ashley Shope, assistant vice president at Unum, via email to ask for her advice.
Psst: We've previously talked about three major open enrollment tips for career women, insurance tips for young professionals, and 7 financial steps to take before the end of the year.
Advice on Long-Term Disability Insurance
Corporette: If someone is, for example, a healthy 30-year-old woman, how much thought should she be putting into this issue?
Ashley Shope: Long-term disability insurance is an important component of a woman’s financial plan. Your most important asset during your working years is your ability to earn an income — not your house or your car. It’s critical to protect that at any age.
Long-term disability insurance is an important component of a woman’s financial plan. Your most important asset during your working years is your ability to earn an income.
Younger workers tend to be more reliant on their income because they’ve had less time to save. Think, “If I had an accident or injury that prevented me from working and earning an income, how long could I support myself?”
Remember regular bills, like mortgage or rent, don’t stop just because you’ve gotten sick or hurt.
For most people in their 20s/30s/40s, is the long-term disability coverage that is provided by your employer enough? What do employers typically provide?
Some employers provide long-term disability as an employee benefit covering the cost entirely, some share the cost with employees, and some offer it as an optional benefit employees can select and pay for themselves.
Plans typically cover 60% of your base salary. This may be enough if you could feasibly live on 40% less than what you’re making now.
Think about your regular expenses, like house payments, rent, or car payments, as well as household goods.
You may also be offered a base level of protection from your employer with the option to purchase additional coverage to help fill the coverage gap.
If bonuses or commissions make up a lot of your take-home pay, you’ll definitely need some extra coverage to help fill the gap since long-term disability is usually based on your base salary.
Individual disability insurance policies can help fill that gap. Your employer may offer these plans, or you can supplement what your employer provides by purchasing additional coverage outside of work.
What are the factors that someone should consider when deciding how much coverage they need and what kind of costs make sense?
Understanding your individual financial situation is key to understanding how much coverage you need.
Some factors you should consider include how much savings you have on hand, your monthly expenses, and other benefits that may come along with your job, like health insurance benefits. It’s also good to have a really honest conversation with yourself and your spouse or partner about how long you could afford to be out of work.
Rates for long term disability insurance are typically based on what percentage of your salary you are looking to replace. So, a policy that replaces 40% of your income will be less expensive than one that replaces 60% of your income.
Besides the time period, what are the key differences between short-term and long-term disability insurance?
The timeframe the insurance covers is the main difference. Short-term disability insurance has a finite end. Long-term disability insurance could last a few years or up until retirement if your plan allows.
Some plans also vary in how they define disability. Some plans cover the loss of ability to do your specific job, others cover the loss of ability to do any job for which you are qualified. Benefits can also be payable if you have to reduce your hours vs. being totally disabled and missing work completely. These are all areas you should look into.
We've all heard about the potential serious long-term effects of COVID-19 — should that be a factor in people's decisions on long-term disability insurance?
Absolutely. Illnesses are a top cause of long-term disability. In fact, cancer is the number one cause of long-term disability and has been for over a decade.
Today’s pandemic reminds us that unexpected illnesses are a greater reality than we may think. Even if you recover from the virus, the long-term side effects of it are still largely unknown. And with the diagnosis of a serious illness that keeps you out of work, you are also likely to incur additional medical expenses. At a time where your expenses may be going up, you don’t want to worry about replacing your paycheck, too.
Illnesses are a top cause of long-term disability. In fact, cancer is the number one cause of long-term disability and has been for over a decade.
Are there any common misconceptions about long-term disability that you think are important to point out?
Most people think disability will never happen to them. But there’s a one in four chance a 20-year-old will experience a disabling incident before they retire. Others may think Social Security Disability Insurance is sufficient coverage; however, that coverage typically kicks in too little too late.
Your most important asset during your working years is your ability to earn an income. Disability insurance protects this.
Most people think disability will never happen to them. But there’s a one in four chance a 20-year-old will experience a disabling incident before they retire.
Over to you, readers — do you have long-term disability insurance through your employer? Have you increased that coverage beyond the basic level, or have you purchased more through an insurance company? (If so, how much are you paying/insuring?)
Have you ever had to use long-term (or short-term) disability coverage?
we have through employer. would love to increase coverage, but that is not an option through our employers. is that typically an option through work? when we looked at coverage outside of work, we were essentially denied/what we were offered was so minimal due to the fact that DH had received treatment for anxiety in the past, that our financial advisor told us we are better off cushioning our savings
This is the most important insurance coverage that professionals can have.
Just for additional color, my spouse’s employer paid about 2 years of premiums when he was in his late 20’s, and when he was fully / quickly disabled by a common autoimmune disease at Year 2, for 15 years the policy (plus SSDI, which they require you to take) has paid us 60% of his old professional income, and it will continue to do so until he is 65 (20 years from now) or his death.
+1 We all end up with something to deal with, either medical or the result of an accident.
I have longterm disability insurance through my job, but I don’t think my job is guaranteed forever AND I’m single so I would have $0 in income if I became disabled to the extent I couldn’t work AND my financial planners (fee only and independent) advised that the longterm disability insurance through my job is not enough. I was actually rejected from the first company because I have a history of depression, but the second company I applied with approved me for 60% of my salary, but just with a rider that the benefit wouldn’t apply to any disability caused by depression. My policy is about $1700 per year, and it provides HUGE peace of mind since I don’t have a partner to provide income if something bad happens.
What company finally gave you a policy? I also have depression.
Mine is with Principal and covers disabilities that prevent me from working my profession.
I’m the person who was quoted $448 below – this was another one of my stumbling blocks because not many disabilities would prevent me from working my profession. I suppose being ill from cancer would be one thing.
When I was applying, I could chose between coverage for disabilities that prevent me from working my profession (lawyer) or disabilities that prevent me from working all together. I could think of a few things that would prevent me from working as a lawyer but maybe not as a store greeter or something similar. Things that might affect my ability to think and process information but that aren’t physical disabilities.
My husband works for a very small company and I’m self-employed. When we looked into it, it would be like $448 a month for us. So we don’t have it.
Yes, we both do. It’s not cheap and was really hard for me to come to terms with paying for it initially, but after seeing everything I’ve seen this year I’m so grateful for the peace of mind. That, and we’ve had some minor medical things come up for both of us this year. Despite how minor they are, they are now both permanently in our medical charts. I’m glad we did our physicals and locked this up when we did or else some of what we’re dealing with now might be excluded from coverage.
I had previously carried employer-sponsored coverage. I don’t have any plans of leaving my job but if I did we’d have to go back in the open market for it, presumably at an older age with potentially more negative health things that would ding us on coverage or premium. That drove us to get private, non-employer coverage. Frankly, I wish someone had told me when I was 22 and healthy as heck to get life and disability coverage because I’d never be healthier (or cheaper) to insure.
I have critical illness cover which I don’t think is quite the same thing? Anyway, as a single person without dependents but with a mortgage that is more important to me than life cover.
I have the 60% through my work and added a policy through Prudential. I’m single and mid-30s so I felt like this was necessary. It was recommended by my financial planner. Mine cost is around $1600 a year. I had to do a medical test and initially had a rider because of chiropractor visits for my back and because I see a therapist. I’m not aware of having a specific diagnosis from my therapist and I’m not giving up going. Since I was able to go a year or so without any back issues they reviewed by policy and my whole back is now covered. I didn’t love those hoops, but I’m glad to have it settled. The policy has been in place a few years, but I haven’t used it yet so I can’t speak to that part.
I’m happy to see this topic come up because I asked a week or so ago for any recommendations for companies that will provide short term or long term disability benefits where you have some medical issues and didn’t receive any responses. Northwestern Mutual rejected me a couple years ago due to having periodic fainting episodes without any diagnosis (nothing diagnosed as wrong with head, brain, etc). Any recommendations where I should apply?
I am looking for similar recs. I tried PolicyGenius, but no one would underwrite me for more than two years of payout due to BMI. It’s not really worth it unless I get potential benefits for 10+ years…
I’m a doctor and I really feel like this is essential for physicians. We have invested so much time and money in our profession. There are so many bad policies out there. I feel really lucky to be able to afford my own policy and it gives me a huge piece of mind.