By Brian Plain, lifestyle financial planner at Brian Plain, CFP®
If you have a car, there’s a high probability that you have automobile insurance. If you rent or own a home, there’s a good chance you have either renter’s or homeowner’s insurance. And if you have a spouse, partner or children that rely on you financially, I certainly hope you have some life insurance. But none of these forms of insurance will cover the most commonly forgotten risk.
What if you become disabled and have an interruption or complete loss of your income?
Many people significantly underestimate their own probability of becoming disabled and fail to secure the necessary insurance to protect against that risk, so let’s talk about disability insurance.
There are two types of disability insurance: short-term and long-term.
Short-term disability insurance is structured to pay out a percentage of your lost income sooner and will typically do so for shorter periods of time. There is usually a waiting period of somewhere between 0 to 14 days, depending on your specific policy, before you would begin receiving benefits. Benefits are paid until you have recovered or reached the end of the coverage period for your specific policy. Short-term disability polices can be up to two years in length, but are commonly seen for coverage periods of 30, 60, or 90 days.
Long-term disability insurance is structured to have a longer waiting period of somewhere between 30 to 180 days before benefits would begin, but will pay out for longer periods of time. The coverage period for this type of policy can run from a few years all the way up to your age 65 or even your lifetime in certain policies.
As you may have already guessed, the cost of short-term disability insurance is usually less, relative to the cost of long-term disability insurance, as it covers you for a shorter period of time.
Now that we’ve identified the forgotten risk and learned a little more about disability insurance and the difference between short-term and long-term disability policies, let’s turn our attention to how you can go about making sure you are covered.
If you have benefits available to you through your employer, this should be the first place you look. You may already have coverage through your employer and not even know it. Many companies will provide both short-term and long-term disability insurance to their employees through a group benefit plan. If you’re not sure, call your human resources or benefits contact to find out what coverage you might have and/or what types of coverage you might not be participating in currently that are available.
If you’re self-employed, you should look at any benefits offered to you through your affiliation with an industry group or trade association. You might be eligible to participate in a group short and/or long-term disability plan through one of those organizations.
The primary advantage of purchasing both short and long-term disability insurance through your employer is the cost and ease of doing so. As it is a group plan, there is rarely any underwriting required prior to issuing your coverage and the group plan is often less expensive than if you purchased an individual policy on your own.
The potential concern with using group plan coverage is you were to leave your employer, you wouldn’t necessarily be able to take your disability policy with you. And if you leave to start your own business or your new employer doesn’t offer a similar policy, you will need to look into purchasing your own individual policy.
A disability that keeps you from being able to work can be financially devastating. Be sure that your family won’t be left in a tough spot and make sure you have both short-term and long-term disability insurance.
If you have any questions about your disability coverage or how it works, feel free to email me at Brian@OakParkPlanner.com or call me directly at 708.406.9755. I’m happy to help.
Brian Plain is a lifestyle financial planner at Brian Plain, CFP®, www.brianplain.com. Investment advisory services offered through Gradient Advisors, LLC (Arden Hills, MN 877‐885‐0508), a SEC Registered Investment Advisor. Gradient Advisors, LLC, and its advisors do not render tax, legal, or accounting advice.