There are circumstances in your life that require obvious change. For example, when we had our first child, it was clear to me that we should increase our life insurance. (Maybe it isn’t as obvious to everyone else and it is just me.) When you buy a car, you have to get insurance in many states. Even people know that at some point they are going to die and need to prepare themselves for that inevitable “change” (not to get all tarot-card-y with the “death equals change” thing).
I can’t think of the circumstance that pushes someone to get disablity insurance… except for when it is too late. When you get your first job they don’t say, “Don’t forget to get disability insurance. When you get a new house, I rarely hear the advice, “Get disability insurance, so you can afford mortgage payments.”
Aside from the Aflack duck, I don’t see a lot of advertisements pushing me to get disability insurance. Maybe I’m not looking hard enough, because it seems to be one of those products you’d see advertised everywhere.
I earn almost 100% of my income at a computer. At first glance, it doesn’t seem to be the type of occupation that requires disability insurance. Even someone with Stephen Hawking’s motor neuron disease could probably physically do what I do with the advances of computers today. However, I am reminded of a colleague, Ben from Money Smart Life who came down with carpal tunnel syndrome a few years ago. While he was able to continue to blog with Dragon NaturallySpeaking software, I imagine it wasn’t easy.
Ben and I have it fairly easy being bloggers. Just about every other job under the sun is more physically demanding, all the more reason for people to have good disability insurance.
Michelin has the great tagline that “so much is riding on your tires”, but if you stop to think about it, just about as much is riding on your income. If you go with GoodYear or Firestone instead of Michelin tires, you still have something reliable, but how many of us are operating our financial vehicle without anything?
One reader recently emailed me suggesting that I find out more about Suncorp Income Protection, but that seems to be an Australian-based company and probably not a great fit for me in the United States.
While I am at it, I should take stock of our life insurance now that we have a second child.
Rebecca @ Stapler Confessions says
We have had disability insurance for years because I’m scared of having a disability that not only prevents me from working but prevents me from doing childcare activities and costs a bunch of money to treat or accommodate. Someone once told me that the worst part about being unprepared for disability is that, unlike if you neglect getting life insurance, you’re around to see the aftermath!
Anyway, all that is to say that you should definitely look into disability insurance — even if you could still work at your computer, you may need accommodations to your home, expensive ongoing treatment, and/or to hire someone to help with childcare or house chores.
Thanks for the great post. Too few people properly understand how disability insurance should fit into their financial life. Not surprising given the very misleading name (overseas it’s referred to as income protection) and policy features that seem overly complicated.
I’ve written a little bit on this subject and would be happy to share if you think you or your readers would find it useful?
If you have the option of using pre-tax or post-tax money to pay for disability insurance, opt for the post-tax money. Using pre-tax money saves you a few dollars per month right now, but it also means that the benefits are subject to income tax – potentially hundreds of thousand of dollars in taxes.
I looked into disability insurance when I was temporarily working as a contractor. I was just about ready to purchase the policy when my employer converted me to a full-time employee. The new job came with disability coverage and not only did that obviate a personal policy, but when I informed my agent of the change in situation, he said they couldn’t sell me the personal policy we had been talking about. Insurance companies don’t want you to be worth more disabled than working, for some reason :)
It was somewhat complicated but not that bad. As a computer worker you probably want “own occupation” (vs. “any occupation”) and in my opinion it’s worth getting a policy with inflation increases. Unsurprisingly the insurance is cheaper per dollar of coverage for computer workers than other, higher-risk occupations.
I don’t know what fraction of people have coverage through work; I know I’ve had it at all of my jobs but that might be the exception to the rule. As with all insurance, workplace-provided insurance has pros and cons. But unlike life insurance, as I mentioned above, you can just get adequate insurance with a private policy and treat your workplace-provided insurance as supplementary.
How do you not have DI Coverage?! Bad PF blogger lol. Another cool rider is one that will continue to fund your retirement accounts should you no longer be able to due to your disability.
Tom at Life Ant says
My first piece of advice to any reader is to make sure any disability insurance purchase is part of a comprehensive plan.
Risk management, taxes, and wealth creation are all interrelated. The problem I see with most insurance agents is that the solution to every problem is insurance.
Disability insurance can be a vital part of a comprehensive plan. The key point is to make sure you are working from a comprehensive plan that is looking at the whole picture, and not just one single risk.