What is short-term and long-term disability insurance?

Meredith, a former NCAA Division I college swimmer and avid triathlete, seemed perfectly healthy at age 30. But just weeks after giving birth to her first child, she began suffering from headaches so strong they made her cry. Her ultimate diagnosis: a fist-sized malignant brain tumor that is almost always fatal. 

What followed was an aggressive treatment strategy that included three brain surgeries, a seven-week chemotherapy regimen at an out-of-state brain tumor center and more chemotherapy at home. During her treatment, she and her husband couldn’t even think about their bills, let alone how they were going to pay for them. Worse: Meredith was unable to work for a year while she recovered. 

Stories like this don’t usually have a happy ending. But this one’s different.

Meredith was an insurance agent and, after watching her mother battle breast cancer, she decided to buy as much disability, life and long-term care insurance as she could while she was still young and healthy. 

Click on 2 to read more of Meredith’s story.

It may have seemed a silly expense at the time–after all, she had yet to hit 30 and was the picture of health. But thanks to her disability insurance, Meredith was able to cover 60 percent of her income while she was out of work and receive a partial disability benefit to supplement her income when she returned to work part-time. 

Told she would be lucky to live for one year, Meredith has now been cancer-free for more than eight. She even returned to competing in triathlons. Her experience also inspired her to build a successful wealth management practice focused around protection. “Your ability to earn income is your greatest asset,” she says. “Insuring it must be a top priority.” 

Most of us have heard of disability insurance. But we don’t think about it, or don’t want to think about it, until we need it. And that happens more often than you might imagine. According to the Life and Health Insurance Foundation for Education (LIFE), three in ten workers will suffer a disability lasting three months or longer at some time in their career–and 90 percent of disabilities occur outside of work (so they’re not covered by Workers’ Compensation). 

Those are some scary statistics. If you’re working full-time, it’s not hard to imagine the impact losing a paycheck for even three months could have on your life and your family (if you have one). Couple that with the treatment and rehabilitation costs that may not be covered by insurance, and you have the makings of a full-blown financial crisis. 

In some cases, you can apply for Social Security disability benefits, but many people are turned down because of the strict criteria. Social Security disability benefits are not available, for example, if you’re expected to be out of work for less than a year. (You can read more about the application process and qualifications for receiving benefits here.)

Go to page 3 for answers to the most frequent questions I got about disability insurance.

How does disability insurance work?

Disability insurance replaces some or all of your income when you can’t work because of an illness or injury. Short-term disability insurance can cover all or most of your income for three-six months, while long-term disability insurance can cover 40-80 percent of your income depending on the type of policy you have, until you are capable of returning to work. 

What are the most common reasons people get it?

Most absences from work are actually due to illnesses. The most common reasons for long-term disability claims include cancer, heart disease, diabetes, arthritis, back pain, mental illness, and digestive and neurological disorders. Only 10% of long-term disabilities are due to injury.

Should I wait until I have a family to get it?

According to research cited by the Social Security Administration, a 20-year-old worker has a 3 in 10 chance of becoming disabled before retirement age. With those odds, disability insurance is a pretty good bet. And it’s easier and less expensive to get it when you’re young and healthy. If you’re thinking of getting pregnant, make sure you have short-term disability in place before you do, so you’re able to get payments while you’re out on maternity leave to cover lost income. (Maternity is the most common reason for short-term disability claims.) If you try to get it after you’re pregnant, you either won’t be able to or the insurer will exclude your pregnancy as a covered disability. 

Am I already covered? 

Many companies automatically cover employees, but typically only for short-term disability. 

Some employer plans allow employees to buy additional coverage at a discount with minimal or no evidence of insurability, which is a huge advantage. But group benefits have limitations. Some professional associations also offer coverage at a discount, but again, it may be limited. 

Go to page 4 for more on what you should know before you buy disability insurance. 

Should I get group benefits?

Group disability insurance can be convenient and affordable, and in some cases free; however, there are tradeoffs. Your coverage will only last 90-180 days (unless you have signed up for long-term disability insurance). Your benefit is usually capped at $50,000. Your benefits will be taxable if your employer pays your premiums. And group benefits are not portable if you leave the company. 

Is it worth getting disability insurance if I can’t afford much?

When budgets are especially tight, it still makes sense to buy enough disability insurance to cover the rent or mortgage and keep your family in their home should you become disabled.  Individual disability insurance typically costs 1-4 percent of your income, depending on the extent of coverage, but can be more affordable. For example, a healthy 35-year-old can get an individual policy with a $1,000 monthly benefit for around $25 per month.

What does all this jargon mean? 

There are a lot of terms related to disability insurance that aren’t particularly easy to understand. The bottom line is: The more coverage, protection and flexibility in returning to work you want, the more expensive the policy will be. You can learn more about the jargon here

How do I know how much and what type of insurance is right for me?

There are a variety of calculators available online, including this one, but you should also consult a professional–either your company’s HR administrator and/or an experienced insurance agent–for clarification and confirmation. Ask for referrals and talk to two or three different insurance agents for comparison. To get an idea of cost, you can get a quick online quote here

How much does it matter which company I purchase the insurance from?

The company you choose to buy from is making a long-term commitment to you. If you become disabled, you may need benefits for many years, so it makes sense to buy from a company with experience, financial strength and a solid reputation. Rating companies like A.M. Best and Standard & Poor’s allow you to research an insurer’s credibility. 

You might also like:
Know Your Unknowns 
How Much Life Insurance Do I Need?
Protecting Your Plan