A financial professional's family faced a stark reality when disability struck unexpectedly. The experience underscores a lesson most people overlook: disability insurance protects your household income when you cannot work.
Disability insurance replaces a portion of your earnings if illness or injury leaves you unable to perform your job. The coverage matters most for workers aged 35 to 65, since the Social Security Administration estimates that one in four of today's 20-year-olds will experience a disability lasting 90 days or longer during their working years.
Two types exist. Short-term disability covers gaps lasting weeks to a few months, typically replacing 50 to 70 percent of your salary. Long-term disability picks up after short-term ends, often at the three-month or six-month mark, and continues until retirement age or recovery. Benefits usually cap at 60 to 70 percent of gross income.
The cost varies sharply. Group policies through employers cost far less than individual plans. Employer coverage often runs $20 to $50 monthly for workers, though employers may absorb the full premium. Self-employed individuals and freelancers face steeper prices, sometimes hundreds monthly, since they shoulder the entire cost.
Many assume their emergency fund or savings will bridge income gaps. That math fails fast. A six-month disability depletes most households' reserves. Mortgage, rent, insurance, and food bills continue arriving whether you work or not.
Financial advisers themselves often skip personal disability insurance, betting on savings and client fees. This gap leaves their families vulnerable. A serious accident or illness doesn't pause a mortgage payment or stop medical bills.
The best time to buy disability insurance is while you're young and healthy. Insurers charge less to younger applicants and those with clean medical histories. Waiting until health problems emerge locks you into higher premiums or outright denial.
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