One of people’s greatest fears is that they will get sick or injured, can’t work for a long time, get in debt, and then lose their savings and their house, basically losing their independence and dignity. Sounds grim, and it is.
If you have enough money in savings or investments that you could weather up to five years of unemployment, stop reading here. For the rest of you, disability insurance might be the answer.
But do you need short-term disability or long-term disability, or both? Again, that probably depends on your own financial situation.
If you can go without a paycheck for up to six months, then you probably don’t need short-term disability. But few of us have built up that much of an emergency fund. Short-term disability pays approximately 40 to 65 percent of your salary if you get sick or injured, excluding injuries on the job,which are covered by worker’s compensation. Most people receive short-term benefits for three to six months, with most policies capping benefits at two years. The downside is that it is hard to get an individual short-term disability; the best bet is to try to get one through a work group policy.
Long-term disability insurance picks up where short-term disability ends. Long-term disability usually pays 50 to 60 percent of your salary, and can last from two to five year, or until retirement. These policies are often offered through the workplace, or you can buy an individual policy. With LTD policies, you can choose the waiting period for benefits to start. The longer the waiting period, the smaller the premium. Make sure you know what you are signing up for: Some policies allow benefits when you are unable to perform your normal occupation, while others only payout if you cannot perform any job at all. Some policies require that you be totally disabled, while others pay benefits if you are partially disabled.
Your financial planner can help you decide what kind of disability insurance you need.