Why do you need disability insurance?

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During your working years, you are more likely to face disability than death. Nearly one out of every three workers will suffer a disability lasting three months or more at some point during their career, according to the Life & Health Insurance Foundation for Education (LIFE).
And disability isn’t a one-time event. The repercussions can continue for months — sometimes years — impacting the financial security of you and your family. If you can’t do your job, money isn’t coming in, and the bills start piling up. As financial guru David Bach puts it: “What this means to you and me is that the greatest threat to our ability to finish rich may be the risk we all face of serious injury or illness! And the younger you are, the greater your risk actually is.”
Also, according to The Wall Street Journal article:
Americans are recovering and living longer from accidents and diseases such as cancer, but they aren’t always able to go back to their jobs. And some research, such as a recent Hartford Insurance Co. study, suggests that rising rates of obesity and diabetes are leaving workers disabled at younger ages than in recent past. Cancer was the number one cause of long-term disability last year at the largest disability insurer, UnumProvident, the company says. Other top causes include complications of pregnancy, musculoskeletal diseases, back injuries and heart disease.
What should you look for in a disability insurance policy?
Look for an “own occupation” policy. This means that if you can’t do your current job, the coverage will protect you. If you have an “any occupation” policy, then as long as you do any job including sweeping floors in a warehouse, flipping hamburgers or making telesales calls, then the policy will not pay out. One quote I received had “own occupation” for the first two years of disability and then sneakily changed to “any occupation” after that.
Look for coverage to age 65 when your retirement benefits will kick in. Amazingly, I only asked for quotes for coverage to age 65, but time and again companies came back with policy quotes for five years and ten years. The policies are cheaper so can be more attractive to people but they don’t make sense to me. It still leaves our family at risk in the event of a long term disability.
Figure out how long you can last before the disability benefits start. Once again, the benefits of an emergency fund come to the fore. If you have a healthy emergency fund and can last for six months (or longer, particularly if your employer has a short-term plan in place), you can save significantly on premiums. Get quotes for 90 days, and 180 days or more so you can consider what works best for your financial situation. Interestingly, LIFE says that 70 percent of working Americans only have enough money to be off work for one month before everyday expenses would force them to go back to work. If they can’t work, then the only option is debt.
Decide how much you want in benefits. Many policies will offer a benefit equal to about 60% of your gross income. If you are paying your own premiums, you will not be taxed on the benefits, so factor that into your calculations.
Insurers rank you according to your occupational class.
Make sure that your policy is guaranteed renewable. This means that your coverage is guaranteed renewable to the termination date (in our case, to age 65) as long as the premium is paid on time. The insurer cannot change any feature of the policy, except for the premium, until the termination date. The premium can only be changed if the change is made for all policies with the similar benefits insuring the same risk class.

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