Take a second to think about your most important and valuable asset. Your car? Your engagement ring? That collection of Beanie Babies from the 1990s? You missed the one asset that is greatly undervalued and often goes unprotected — your own ability to make an income.
I’m going to say that again, but differently: Your ability to make money is your most important asset.
Earning a living drives everything we do. It even drives our ability to acquire more “valuable” assets. And what do we do for our most important assets? We protect them. We insure our cars, our homes, our belongings (even our engagement rings), and we our health. And yet so few people see the importance of protecting their income with disability insurance.
Why Disability Insurance Is Important
So why is disability insurance important? According to the U.S. Social Security Disability Program, 56 million Americans live with disabilities. That’s one in five people in the U.S. alone. What’s more, one in four of our nation’s 20-year-olds insured for disability will become disabled before reaching retirement age.
How many of your peers are aware that they have a 25 percent chance of being disabled during their working lifetime? Probably none of them.
More than 20 percent of workers under the age of 40 believe that they are more likely to win the lottery jackpot than become disabled, according to a study from the Council for Disability Awareness.
The odds of winning the lottery jackpot are one in 259 million. Compare that with the odds of a 20-year-old becoming disabled before retirement. We’re a lot more vulnerable to injury and illness than we think, but we’re not doing much about it.
Sixty-one percent of people surveyed in a study conducted by Life Happens and LIMRA believe that most people need disability insurance. However, only 26 percent of them actually own disability insurance.
These uninsured individuals who become disabled will have to rely on personal savings to keep themselves — and possibly their entire family — afloat. Their savings will have to be enough to cover regular living expenses, plus additional costs related to their disability.
Sadly, only 45 percent of Americans could fund a three-month financial disruption using money from an emergency fund, according to a report by the Federal Reserve. And 47 percent of Americans would find it difficult to cover an expense of $400 without using some form of borrowed money.
How to Get Covered
We know that not everyone has access to disability coverage through their employer. If you do, this is the most affordable way to cover your greatest asset. But if you don’t, it’s still possible to protect your income. Let’s look at your options:
Short-Term Disability Insurance
Short-term disability (STD) provides salary protection – often up to 80 percent of salary. It applies for employees who have a qualifying illness or injury and are unable to return to work. After a short waiting period of up to 14 days, the disabled employee could receive coverage over the course of two weeks to two years, depending on their plan.
Short-term disability can cover a prolonged illness, childbirth, or an injury that impacts your work.
Long-Term Disability Insurance
Long-term disability (LTD) is similar to STD, but provides coverage over a much longer time frame. LTD offers salary protection, usually at a lower rate of 50 to 70 percent, and plans will often continue to pay until the disabled employee turns 65. However, some plans only pay for a period of five to 10 years.
What If You’re Self-Employed or Your Employer Doesn’t Provide Anything?
If you’re self-employed or your employer doesn’t provide the benefit of disability insurance coverage, you can get covered on your own.
If you can’t foot the bill for both short-term and long-term disability, try to have an emergency savings fund. This fund should could cover you for the short-term. Then it can pay the premium on a long-term disability policy.
Indeed, if you are transitioning from being an employee to becoming a freelancer or self-employed, you will need a few other insurance policies, as well.
The most important things to keep in mind when getting coverage of your own is to know how much you need to get paid out of your disability policy. What's more, you should know how long that policy will remain active, and under what conditions the insurance company must pay you if you become disabled.
The longer you are in business as a self-employed person, the better off you will be when trying to obtain a disability policy. Make sure that your policy is guaranteed renewable so that as long as you pay your premiums on time, the company has to maintain your policy at the same price and benefit amount that you negotiated at the beginning.