Disability insurance is the type of insurance policy that will reimburse you for some of your lost income if you become injured or ill and are unable to work. If you work in a field that is particularly dangerous and where the risks of injury or illness are high, you might consider buying disability insurance to protect yourself and your family from those risks. Unlike car insurance, health insurance, life insurance, and homeowner’s insurance, though, disability insurance is often seen more like a luxury or special precaution than as an asset.
If you are weighing the pros and cons of purchasing disability insurance, consider the points below.
- You might have some coverage through work.
Ever heard or workers’ compensation? That’s a type of disability insurance. If you are injured on the job and are unable to work for weeks or months at a time, workers’ comp insurance would reimburse a percentage of your salary. However, not all companies—particularly small businesses with only a couple of employees—have workers’ compensation coverage.
Furthermore, workers’ comp only covers you if you are injured on the job. In other words, if you are diagnosed with cancer and have to take a leave of absence while undergoing treatment, workers’ compensation would not provide any salary. With that said, some companies do buy disability insurance for their employees, so you should ask your employer about your coverage.
- Disability insurance does not reimburse you for your full salary.
If you do decide to buy disability insurance, don’t expect it to compensate your full salary if or when you become disabled. In most cases, disability insurance policies will reimburse between 40% and 65% of your income.
- Statistically, you might need it more than you think.
According to the Social Security Administration, roughly a quarter of all 20-year-olds will become disabled at some point in their careers. This statistic factors in any disability—from short-term injuries and illnesses that force you to take a few weeks off work to long-term disabilities that are permanent and leave you unable to work at all. Still, the SSA statistic essentially predicts that 25% of all people will have occasion to benefit from disability insurance coverage at some point before reaching retirement age.
- There are different types of disability insurance.
Typically, insurers will offer two types of disability insurance to their clients: “own occupation” and “any occupation.” In the case of “own occupation” insurance, your policy will reimburse you for any disability that leaves you unable to work in your particular job. If you have a job that requires you to be on your feet all the time and you suffer an injury that confines you to a wheelchair, “own occupation” insurance would cover the salary loss because you would have to give up that specific job.
“Any occupation” insurance will only provide coverage if your disability precludes you from working any job. For instance, just because you are confined to a wheelchair doesn’t mean you can’t take a desk job. Therefore, “any occupation” coverage wouldn’t offer a salary reimbursement for your disability, even though your injury made it impossible for you to continue working the job that required you to be on your feet all the time.
Many people opt not to purchase disability insurance, largely because it is expensive and there is a 75% you will never need it. However, in the other 25% of cases, disability insurance can help keep your family afloat when you aren’t able to work. You’ll have to decide for yourself whether to make the investment or take the risk.