More than 60 million adults in the U.S. — nearly one in four — currently live with a disability, according to the U.S. Centers for Disease Control and Prevention (CDC). Mobility problems like difficulty walking and cognitive challenges like trouble remembering things are some of the common issues that Americans experience.
As you get older, the chances of dealing with an issue like this increase — two in five adults age 65 and older have some form of disability, according to the CDC — and you might find yourself considering insurance options. So, what is disability insurance?
If you experience a disability while you're working or nearing retirement, it can be a devastating blow, not only to your physical health but also to your family's financial stability. Having a disability insurance policy in place can help ease the strain.
What Is Disability Insurance?
Disability insurance pays benefits to replace the income of workers who are unable to perform their jobs because of a disability. There are two types of disability insurance:
- Short-term disability insurance: This typically provides coverage for three to six months, according to the National Association of Insurance Commissioners.
- Long-term disability insurance: Coverage usually begins six months after the disability occurs and can last several years.
Disability insurance policies are both noncancelable and guaranteed renewable. That means that once you purchase a policy, you have the right to renew the policy each year and keep the same benefits. The insurance company cannot cancel it unless you fail to pay the premiums.
In addition to these standard disability insurance features, you have several options for upgrading your coverage, as the Insurance Information Institute explains. For instance, you can pay extra to get the coordination of benefits feature, in which your policy will fill the gaps in coverage from other forms of assistance, like Social Security disability benefits or health insurance.
You can also pay a higher premium to receive cost of living adjustments to your benefits over time, a rider that lets you work part-time and receive a partial disability benefit or a refund of your premium if you make no claims within a specified time.
Do You Need Disability Insurance?
To decide whether disability insurance is a wise financial investment for you, consider what might happen to your household finances if you or a disabled family member were unable to work. With that loss of income, would you still have enough money to keep the lights on? Pay the rent or mortgage? Avoid dipping into your retirement savings or the college savings for your kids? If the answer is either a definite "no" or a nervous "I'm not sure," you might need the financial protection of disability insurance.
Regardless of your current age and health status, taking the proactive step of buying disability insurance may prove to be a financial lifesaver if you ever lose your ability to work and earn an income.
Tips for Buying Disability Insurance
Now that you have some basic information to understand what disability insurance is and whether you need it, here are two key considerations to keep in mind if you decide to purchase a disability insurance policy.
For you or a disabled family member to have coverage to replace lost income, you must buy disability insurance before you need it, and the earlier you do so, the better.
As you get older, the likelihood that you will experience health problems or accidents that lead to disability will increase. To cover their increased risk of paying out claims, insurance companies charge higher premiums the older you are when you first purchase a policy. The good news is that most disability insurance carriers let you lock in the more affordable premium rates you get when you're young and healthy.
Don't skip the critical step of calculating how much income replacement you'll need from a disability insurance policy. Take all your expenses into account, including housing, food, transportation, utilities, savings and health care costs.
Being proactive is essential when it comes to obtaining disability insurance. Understanding the basics of disability insurance now is a good start toward exploring how this type of financial protection can help you and your family get through a future health crisis.