Why you may need disability insurance, even if you're young and healthy


About eight years ago, certified financial planner Jeff Rose met with a Carbondale, Illinois, couple in their 20s. He suggested that they purchase disability insurance as part of their financial plan.

Initially, Rose says, they hesitated. So he posed a question he often asks clients: "If you suffer from anything that keeps you out of work, how will you pay your monthly expenses?"

These clients ended up following Rose's advice. About a year later, one of them was shocked to learn she had a brain tumor. To undergo treatment, she had to take a nine-month leave from her job in human resources at a local property management company. That disability policy allowed them to keep up with their household bills and her new medical expenses, Rose says: "How fortunate that they signed up."

Marguertia Cheng, a financial planner and the CEO of Blue Ocean Global Wealth, also recommends considering disability insurance. One of her clients, a woman in her early 30s, used her short-term disability policy after complications put her on bed rest for much of her pregnancy. That coverage allowed her to cover bills while she was out of work, Cheng says, and deliver a healthy baby.

"Instead of thinking of it as insurance for having a 'disability,' think about it as having insurance for anything that could get in the way of you earning income," says Cheng.

How disability insurance works

Disability insurance provides income in the event you are unable to work because of a medical issue. It can help you cover your regular bills, as well as the health care costs you might incur from that illness or injury.

The word "disability" can be misleading, says Sa El, cofounder of online insurance agency Simply Insurance: "Most young people assume a disability is going to come from an accident."

Although there's no available data on how many people use disability insurance each year, more than 1 in 4 of today's 20-year-olds will become disabled before reaching retirement age, meaning they won't be able to work because of a medical condition at some point before they turn 67, according to data from the Social Security Administration. And about 90% of disability claims are a result of common medical issues like digestive disorders, mental health issues, cancer, or pregnancy complications, according to the Council for Disability Awareness.

How to shop for a disability insurance policy

The typical cost of a disability insurance policy is usually 1%-3% of your annual income. So if you're making $75,000 a year, your policy could cost between $750 and $2,250 a year.

There are many types of disability insurance policies out there. Most people get their coverage through an employer-sponsored plans, a private plan, or both. Before you buy a plan, figure out your needs.

To find coverage, ask HR if your employer offers a plan and at what, if any, cost to you. You could also work with an independent insurance agent or go through online marketplaces like Policygenius or Quotacy to compare coverage and get multiple quotes.

Instead of thinking of it as insurance for having a 'disability,' think about it as having insurance for anything that could get in the way of you earning income.
Marguerita Cheng
Financial planner and CEO of Blue Ocean Global Wealth

Here are four things the experts suggest looking at to make sure you have the right coverage:

  • How long your benefits will last: There's coverage for short-term disability, up to six months, and long-term disability, which can last until you're able to go back to work. Some long-term plans have a cap on the number of years you'll receive coverage.
  • When benefits kick in: Policies have a waiting period known as an "elimination period" before you can start collecting benefits. The shorter, the better — but the average is 90 days. Make sure you have enough in your emergency fund to cover your expenses during that time.
  • Whether benefits are taxed: They may be, depending on who pays the premiums (you or your employer), and whether the premiums are paid before or after taxes.
  • Which conditions aren't covered: Find out if there are any preexisting conditions your policy won't cover.

Coverage can provide 'peace of mind'

Rose, who currently runs the personal finance blog, says having disability coverage allowed his client to focus on her recovery and not on the bills. It offered her peace of mind during a medical setback.

"She was seemingly healthy and this diagnosis really hit her family like a truck," says Rose. "But luckily her policy provided enough income so they didn't go under financially."

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