Recently I shared with you news that might negatively impact my personal finances: a skin cancer scare. During that week between the biopsy and the results I was mildly anxious. Not so much about my health (because I was convinced that the results would be fine) as the impact a serious illness could have on my finances. Fortunately for me, the results of the biopsy were benign, and I also have disability insurance coverage through my employer.
Many of the personal finance bloggers and books I read, write about the need for people to be adequately insured, whether that’s auto, renters, home or life insurance. I have auto and home insurance; but as a single woman, I believe the most important additional type of insurance needed is disability insurance. As a single woman, you want to protect your ability to earn income. Especially if there is no Prince Charming backing you up. And even if there is a Prince Charming in your life, wouldn’t you rather have him caring for your health, instead of worrying about supporting you financially during the hardship? Having disability insurance coverage does that.
Disability insurance replaces a portion of your income if you become disabled or sick and are no longer able to work. Generally, disability insurance will replace between 60% and 80% of your income. Typically it doesn’t cover more as they want to provide you with incentive to go back to work.
In this Smart Money.com article “Do You Need Disability Insurance?” the writer shares some interesting facts about health and disability insurance.
Nobody likes to think about what life would look like should disability strike. But the reality is one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days, according to the American Council of Life Insurers. One in seven workers will be disabled for more than five years. And while many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are actually due to illnesses, such as cancer and heart disease. The loss of income can be so devastating that it forces some people to foreclose on their home or even declare bankruptcy.
As I mentioned above, I’m fortunate enough to receive short-term and long-term disability insurance coverage through my employer, as well as life insurance. I pay extra for the long-term disability insurance as well as the life insurance. If I were to get sick enough that I was unable to work for long periods of time, longer than my emergency fund would cover, I have disability insurance to ensure I don’t end up on the street. My employer provides short-term disability coverage for the 2nd week of the disability through the 6th week of 100% of my base pay. For weeks 7 through 26, I will receive 70% of my base pay. After 26 weeks of disability, Long-Term Disability coverage kicks in. I purchase the additional Long-Term Disability through the group plan offered by my employer.
I know you don’t want to think about this. But the older you get the more likely you are that you will be ill. This is my philosophy regarding health, disability and life insurance for single girls like me:
- Get a long-term disability insurance policy to cover your ability to earn income during a serious and long illness. If you are sick, you don’t want to stress about money. You want to focus on recovery.
- Get health insurance to insure that any serious and long illness doesn’t cause you to go bankrupt. See above. If you are sick, you need to get the medical care to ensure recover.
- Emergency fund covers the time between first diagnosis and when long-term disability insurance kicks in AND covers any expenses that your health insurance doesn’t, like deductibles. Also, just because you are sick doesn’t mean that your car or home will suddenly stop falling apart and needing expensive repairs. And, remember, disability insurance only replaces a portion of your income. So if you need 100% of your income to survive, you need a sizable emergency fund.
- Unless you have dependents, you should really consider if life insurance is needed. I believe you only need enough so that your loved ones can make the necessary arrangements for your funeral without incurring the cost burden associated with this. If you have an emergency fund, this should do it. Sure a nice hefty payout would be nice, but I believe that your loved ones would have rather you spend the money on policies like health insurance to ensure you were still alive.
So action steps for you:
Step 1: Learn about short-term and long-term disability insurance. Here are some interesting articles and resources related to disability insurance:
- Smart Money.com article “Do You Need Disability Insurance?
- MoneySmartLife.com: Disability Insurance 101
- American Council Life Insurers: Disability Income Insurance consumer brochure
Step 2: Speak with a professional: your financial advisor or insurance agent about your situation. I’m not a financial advisor. This is all my opinion; you should seek professional advice.
Step 3: Enroll in your employer sponsored disability insurance policy. Secure disability coverage. Also see Step 2.
Step 4: Consider expanding your emergency fund to have enough money on hand for nine to 12 months of expenses. If you were seriously ill, would you have enough money to make up the difference between the coverage your insurance offers and what your living expenses are, plus additional expenses an illness would bring.
I hope none of us would require disability insurance ever in our lifetimes; but better to be prepared than in trouble. My wish for us all is that we live happy, marvelous, healthy and abundantly joyful lives.
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