You’re already paying for so many types of insurance coverage — including health, home, and automotive — so you may be hesitant to pay for yet another type of insurance that you’re not obligated to have. But just because a certain insurance coverage isn’t required doesn’t mean it’s not a good idea.
Is disability insurance a crucial coverage for you, or is it an unnecessary precaution that will end up costing you more than it could ever deliver?
What is disability insurance?
Jason Fernando of Investopedia gives a clear definition of disability insurance. It’s “a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.”
He further explains if a worker with an annual salary experienced an injury or illness that would disable them from continuing to work, “their disability insurance would compensate them for a portion of their lost income provided that they qualify. In this sense, disability insurance essentially covers the opportunity cost of the now-disabled worker.”
Types of disability insurance
There are two different types of disability insurance, as Susannah Snider explains for U.S. News. Short-term disability insurance covers a predetermined portion of your salary for a few months. Long-term disability insurance “will partially replace lost income for longer durations in the event of an injury, illness or other malady that bars you from working.”
The source of insurance can also vary. All working Americans are eligible for Social Security disability insurance if they have a qualifying mental or physical impairment that prohibits them from working — but the criteria for being accepted are very strict.
Some employers provide their workers with insurance coverage through a workplace disability plan, but you likely don’t have the freedom to choose the terms or rates that would best apply to your personal situation. That’s why many people opt for private plans through third-party companies.
Barbara Marquand of NerdWallet recommends signing up for employer-sponsored coverage at work if it’s offered. If it’s not, consider buying disability insurance through the workplace, a professional organization, or an individual plan.
Determining if you need insurance
If you can afford it, disability insurance is a risk worth taking because you’ll never know when you may need it. However, certain factors may increase the necessity that you opt for this coverage.
Rosenberg strongly recommends, “If you work in an injury-prone profession, you should definitely invest in disability insurance.” This applies to those performing manual labor or specialized roles that fundamentally rely on the use of a particular part of your body.
You should also strongly consider having disability insurance if you have a spouse, children, or other family members who directly depend on your income.
Could it happen to you?
Keep in mind, disability insurance isn’t just for sudden on-the-job accidents and resulting injuries; it’s also for internal health conditions like a heart attack, cancer, or a stroke — and those could happen to you even if you sit at an office desk every day.
Eric Rosenberg shares this data from the Council for Disability Awareness: “the most common causes of short-term disability claims are pregnancy, musculoskeletal disorders, digestive disorders, mental health issues, and injuries.”
Having a substantial emergency fund tucked away can be helpful for covering a couple of months of expenses if you lose your job or have a family emergency, but you shouldn’t drain your savings in the event of a lengthy illness or injury. Disability insurance helps support you during such situations, so investing in it can help keep you financially afloat during the roughest times in your life.