Do I Need Long Term Disability Insurance?

Over the last few weeks, I’ve been carefully considering the above question. I’m twenty nine years old, in good health, with a wife and two young children at home. I don’t commute for work, either, vastly reducing my chance of a disabling accident. In other words, my chance for long-term disability is pretty small.

How small? It’s a question that’s almost impossible to research. Almost all of the data out there on the topic was produced by the insurance companies themselves, meaning that I have to read them with a very skeptical eye.

For example, the American Council of Life Insurers claims that one third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days. Intuitively, this seems like an incredibly high number, and because of the source, I have a very high degree of skepticism about that number.

Another scary industry statistic comes from the Health Insurance Association of America, who claim that 1 in 7 people can expect to be disabled for five years or more. Again, this number seems very high to me and could only be even remotely reasonable with the widest possible definition of disability.

The only real statistics I’ve seen on the subject come from the Census Bureau, which report that about 20% of Americans meet their definition of disabled, but only 23% of those disabled people actually qualify for disability benefits. Why? The vast majority of disabilities that the Census Bureau considers to be disabilities are ones that people work through – vision impairment, hearing impairment, and mobility impairment are all considered disabilities, but are ones that strong and self-motivated people can work through.

The obvious solution – the one that most Americans wind up following – is to just say forget it, believing that the risk is too minimal to bother with – and I can understand that conclusion. I know that’s the assumption I’ve operated on throughout my adult life to this point, and I’m willing to bet that it’s the assumption that many of you have operated on as well. However, as five cent nickel puts it, it makes sense to insure what you cannot afford.

The first question thus becomes could I afford the consequences of not having long term disability insurance? A quick examination of my finances says yes – but only over a fairly short term. We’d be fine over the course of a year to eighteen months. Beyond that, things would get very difficult for my family.

Next question: does my employer provide long term disability insurance? Right now, I am self-employed, so I don’t have the benefit of employer coverage. My wife does have this benefit, which would replace 60% of her salary 60 days after a disabling accident, so she’s covered. That still leaves me out in the dark, though.

Given those two questions and the thought process behind them, what I actually need is pretty clear. I need a policy that kicks in in six months to a year after a disabling incident and covers enough income that my family is able to get by, and I only need the insurance over the timeframe that I would actually need it – probably until at least my children are moved out. My impression from these criteria is that the cost of insurance would be quite low.

The next step is to get quotes on this insurance, and this is the step where I’m at. Most large insurance groups offer long term disability insurance and I’ve requested information and quotes from several such groups, including the group that handles my life insurance.

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Come on… is this really worth it? This thought has crossed my mind regularly throughout this process, likely because long term disability insurance seems to be an uncommon thing outside of a job benefits package.

Any insurance you buy is a personal risk-reward analysis. Any time you choose not to insure something, you’re taking on some amount of risk. Insurance eliminates (or vastly reduces) that risk. Life insurance? The risk is the loss in income to your family if you were to pass on. Health insurance? The risk is high health care costs, especially for complex procedures. Auto insurance? Homeowners insurance? Renter’s insurance? They all insure your property against unknown disaster.

Long term disability is another risk you can insure against. If you judge the risk (long term disability where you survive but are unable to work) as being smaller than the cost (the monthly or annual premiums), then you’ll probably not take any out, but that balance is different for everyone.

For me, I’m leaning strongly towards acquiring insurance for a very long term severe disability. I can afford it, and knowing that my family would be secure if something rendered me incapable of writing is very reassuring – a risk and reward balance well worth it for me. Learn more about the ins and outs with site contributor Jennifer McCarthy’s guide to health insurance here.

What’s your take on long term disability insurance?

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  1. CJ says:

    Keep in mind, also, that the definition of “disability” in your insurance policy is extremely important. Depending on your career, it’s important to have a job-specific provision in your policy. For example, if you are disabled from your regular job but deemed capable of working the drive-thru at McDonald’s, you may not be able to claim disability benefits because you are not “fully disabled”. With a job-specific provision, however, you will receive benefits if you can’t work at the position for which you are trained.

  2. Katie says:

    My husband also gets LTD insurance through work since it’s only a few cents per check. I am not sure I would have considered it otherwise. I don’t contribute enough to our income for the policy to be cost effective to cover me. I wonder though if other insurance we carry would cover us in event of a disabling accident, like our umbrella policy. I will have to look into it…

  3. The7thlover says:

    Long Term Disability is the most under-insured area in America. It is an absolute must. If you do not get through work, try to get it through a professional organization, community, etc.

  4. For most people, the risk of losing one income, especially if it a single income family or one wage earner makes a lot more than the other, is huge. I would guess that most people could not get by as long as you can, I know I could not. It is one of those “what if” scenarios that people do not like to think about but should. I have a good LTD policy(I also pay extra for a 75% of salary replacement buy-up) through my employer, but I wonder if I should look at an independent policy so it is not tied to my current job. If were to change jobs, what a new company may offer may not be as good as my previous employer. I would be interested on what your take is on doing that.

  5. DJ says:

    I found that prices vary WIDELY. The group plan offered thru my organization was way overpriced. It pays to shop around. Be sure you get the Own Occupation clause so you can collect benefits if you are no long able to work in the field you are trained in.

  6. Anony says:

    Don’t forget that if you are disabled, there are government programs to help out as well. There is some safety net. Have you compared what you can get with an LTD versus what would already be provided by govt? If you have a LTD, then you get that amount less in govt support. Have you done the math between them? I would love to see your final decision between those 2 options, quantitatively.

  7. Jamie says:

    The risk of disability to your family exceeds the risk of a loss of life on several levels: likelihood of occurrence and cost of occurrence (at least with loss of life, there’s one less mouth to feed, to put it bluntly)… if one cares about one’s family, I think that disability is not a luxury, it’s a necessity.

  8. wishtherewasaneasyanswer says:

    I have been looking into this for a while. I find it very hard to find companies that actually offer this to the self-employed. Or, if they do, it seems I will have to sit down with a rep and talk. Can someone send me into the right direction?

  9. Tabletoo says:

    One thing you might consider is looking into the costs and then setting that amount aside each month in a separate investment account and self-insure. It is true that as a self-employed writer it will be very difficult to be disabled enough to collect on the insurance. It’s hard to be so disabled that you cannot write, somehow, at least from the insurance companies point of view.

    I would urge you to get an umbrella policy however, if you do not already have one – I think you may have already written about those.

  10. Andy says:

    I’d say get it. If you need it, you really need it.

  11. Trent Hamm Trent says:

    “I have been looking into this for a while. I find it very hard to find companies that actually offer this to the self-employed. Or, if they do, it seems I will have to sit down with a rep and talk. Can someone send me into the right direction?”

    That’s been generally my experience as well. A rep always wants to talk in detail about it.

  12. MD says:

    I was one of those professionals who thought I never needed disability insurance….but ended up disabled in my 40s. I am glad I have it.

    Social Security will garner you around $1500-2000/month and is taxable income. A private disability policy with a long waiting period, offset for social security benefits and your own occupation definition of disabled might be the best choice. If you pay for the disability policy with after tax money, there are no taxes on your disability income.

    I’d suggest you also chat with a disability insurance broker – one that represents more than one company. I like this forum for general info.
    http://www.disabilityinsuranceforums.com/

    Other things to look for – what type of medical conditions do they exclude or limit.

    And last – getting the policy through a trade association (ex. engineering trade group) is another avenue.

  13. Pushing30 says:

    LTD is an absolute must. My theory is to plan for the unexpected. For example, my very close friend ended up with cancer at the age of 25. Oral cancer. He was a NON-smoker. The day he went for surgery he found out his new wife was pregnant. Can you imagine the financial implications? This was major, major surgery because the cancer had spread. We are not invincible although many young people think they are. It’s the “it won’t happen to me” belief. Short-term disability runs out. Emergency funds get exhausted. I strongly recommend that everyone obtain disability insurance. You just never know.

  14. Sharon says:

    “The risk of disability to your family exceeds the risk of a loss of life on several levels: likelihood of occurrence and cost of occurrence (at least with loss of life, there’s one less mouth to feed, to put it bluntly)… if one cares about one’s family, I think that disability is not a luxury, it’s a necessity.”

    yep, you are blunt, but ’tis true. Think of if this way. Your spouse will have the care of both the children and you. You will probably have gobs of medical appointments. You may not be able to help with housework or cleaning. You may be on a special diet and extra care issues, which may or may not be covered by insurance. You may not be able to drive, requiring taxis or your spouse taking a day off work. There are other scenarios which are even scarier. Yes, I think you need disability insurance. As a single person, I thought “Who is going to drag my laundry to the laundromat?” Living on my SS disability would be possible I suppose, but there are little things that an extra $60 a week would make life much, much better.
    Sadly, my job now doesn’t provide disability insurance and my professional organization hasn’t come through with theirs, but I am anxiously awaiting the chance,

  15. Faculties says:

    I used to work for an insurance company, writing pamphlets, and I can assure you from having seen the research that the one in three figure is true. If you think about it, you may be able to find those numbers true among your own friends and family — ask several people, including older people (obviously there’s less chance of a 35-year-old having experienced it than a 64-year-old). I myself had an illness that made me unable to work for three months. I believe strongly in disability insurance!

  16. Mary Ellen says:

    At age 29 I too was in perfect health. I had never smoked, I exercised, I did not engage in risky behavior. I had never even heard of long-term disability, although I’m sure my job provided a minimal amount. At age 32, out of the blue, I fell ill with a serious chronic illness–ulcerative colitis. Although I have been fortunate enough to stay in remission for the past fifteen years, I am uninsurable for long-term disability thanks to the UC.

    Last year, I developed an inner-ear condition that is related to Meniere’s, resulting in vertigo and nausea. Thankfully it too is well controlled, and I have missed very little work, much less than many of my healthier-on-paper colleagues. So here I am: my husband and I have three school-aged children, and I bring in 50% of the household income. I have two potentially disabling chronic conditions, and I cannot get long-term disability. If I ever were unable to work due to one or both conditions flaring up, we would not be bankrupt but we would be strapped. I worry every day about this.

    Get the insurance. Please, everyone, if you don’t have long-term disability already and you can qualify for it, get the insurance. I wish I had.

  17. I was involved in a car crash back in January on my way to work. The other car lost control and hit me head-on but I was (relatively) lucky: broken ankle, legs, arm, pelvis etc. I’m back walking but not working but the other guy is far worse off. The irony was that I was thinking about life insurance the night before. Of course, living outside the U.S. also changes the cost/benefits of getting insurance and so does the benefits offered by your job (mine are really good).

    Do I have insurance now? Actually no, but we are looking into it.

  18. I can price it for you (I’m licensed) just to give you a feel if you’re distrustful of the insurance companies. It can be a very good risk/reward situation.

    I do mostly commercial insurance – not trying to shill.

    Good post.

  19. cv says:

    I don’t know the specifics of a typical policy, but in your calculations take into account the fact that your expenses might go way up and not be covered by health insurance. As someone else mentioned, something as simple as transportation to weekly or monthly medical appointments can be a burden, and that’s a small example. Things like home health aides, rehabilitation services, medical devices (hearing aids, wheelchairs, retrofitting your bathroom to be accessible), prescription copays, etc. may not be covered by your health insurance. You’re young and in good health, so I say get the policy.

    You’ve pointed out before that the security of your family is important to you, and you show that with a large emergency fund and ample life insurance. I’m actually a little surprised that you are considering not getting LTD, given your value system. Your chances of being hit by a car and rendered unable to work may be small, but there are all sorts of temporary or chronic illnesses that one can be diagnosed with at any time – cancer, ulcerative colitis, back problems that make sitting for long periods impossible, and plenty of others.

  20. Dee says:

    If you currently have disability insurance through your employer check to make sure you can continue the coverage if you leave the employer. Try to find out what the rates would be if you were to continue the coverage after you leave the employer, you may be shocked to discover you could not afford to keep the policy in place and may want to look into an individual policy now. Also the advice for own occupation is good and keep in mind most group disability policies are offset by social security disability once it kicks in.

  21. Bob says:

    In re long term care insurance. We bought LTCI when I was 50 and my wife was 47. We chose a term of 10 years, just made our last payment, and are now covered for life. We believe it too is an essential, just like disability insurance. Although my wife is an RN, we never knows what will happen to us and whether we will have someone to care for us. Medicare does not cover LTC and Medicaid does not start until your assets are at $2000 or less. ADVICE: check the definitions CAREFULLY, whether in home care will be covered, and most importantly whether there is an excalation clause because nursing home care nationwide averages over $4000/month/per person.

  22. LoveandSalt says:

    Yes, the question is– can you get it before you become uninsurable?
    When I was 34, in perfect health, I started a new job with the University of California. I didn’t enroll for LTD. Six months later I had the first episode of what would finally be diagnosed as MS. Think you can get LTD with that diagnosis in place?
    Well, some twenty some years later I am thankfully not disabled, but I sure would like to have a shot at that insurance I passed up then. Sometimes you need to get it BEFORE you need it.

  23. Katy Raymond says:

    You ALWAYS need to get it before you need it!!

    My SIL tried to get a long term care policy at age 56–nice and young, right? She was FLATLY refused because she’d had dizzy spells of “undiagnosed origin.” Period.

  24. John Hunter says:

    Disability insurance is an absolute must have in my opinion. The risk is too great. I have bought it myself when I switched jobs and was not going to be covered for a period (I think 1 year).

  25. I have a disabled friend who says that the rest of us are “temporarily abled.” He’s right. If you can afford the insurance in the first place, it’s probably worth it. The disabled don’t get much help in our society, so it’s good to have that on your side for if (when!) it does happen.

  26. NED says:

    The first question thus becomes could I afford the consequences of not having long term disability insurance? A quick examination of my finances says yes – but only over a fairly short term. We’d be fine over the course of a year to eighteen months. Beyond that, things would get very difficult for my family.

    Pardon the long post, I am curious at how you came by your conclusion. Most insurers I spoke to calculated the amount of insurance needed as the living expenses of each dependent multiplied by the term of disability, and guessed at the medical bills needed for rehab. I think a post of how you analyzed your insurance needs in detail would be a useful guide for the rest of us.

    Firstly, how do you factor medical bills into the coverage, is there some ballpark figure to use or is it an average?

    Secondly, as a single I would be the only dependent in case of disability. If it is a temporary disability, my emergency fund can cover basic expenses for up to a year so paying a premium for something I am able to provide for myself seems superfluous?

    I am unable to find any plans that cover the vulnerable period beyond the first year. Are there such plans?

  27. MCC says:

    As someone whose job involves a somewhat higher risk for injury (I’m a chemist), I carry both ST and LT disability. It costs about $40/month total (it is a cafeteria benefit at work–i.e. I have to pay for it). While I don’t have dependents, my care would fall to my elderly parents so whenever I am tempted to cancel it, I think what would they do if I didn’t have some money coming in and was disabled? Not a pretty picture.

  28. Julie says:

    LTD and Long Term Care (LTC) insurance are both a must have in my opinion. I watched my supervisor and friend both be diagnosed at 40 (and healthy and training for triathilons) with ALS (Lou Gehrig’s disease) and die in a matter of a few years. Without these two insurances his family would have gone bankrupt several times over caring for him. It gave him a huge piece of mind knowing that his family would be well provided for with his life insurance and that during his demise they were all well cared for.

  29. PJK says:

    Thanks for the post. I’m curious to know about LTD policies for stay at home moms. I was kind of laughed at when I asked HR at my last job about whether I could continue the LTD policy on my own when I left (along with COBRA, etc.), and she said she’d never heard of an unemployed person having LTD, but think about it…

    1) If I’m disabled and can’t take care of the kids, we need to pay for day care on top of all the other expenses of my disability.

    2) I may not have a job now, but I have a Master’s Degree and 10 years of experience in my field and plan to resume work in my field when my kids are older. But what if I become disabled in the interim and am never able to return to my field? Is it just my bad luck that I happened to become disabled in the few years I was a SAHM? If I was a working mom when I became disabled, I’d still have the LTD coverage through my job. The financial plans of many families with SAHMs include the assumption that Mom will resume work at some point to help with college and other expenses, and we can’t all afford for Mom to never go back to work.

    My husband has an LTD policy through MetLife (continued after leaving a prior job) but I need to look into it to see about the job specific provision mentioned in other comments. That was a really good point I hadn’t thought of.

  30. My iPod says:

    [i]Could I afford the consequences of not having long term disability insurance? A quick examination of my finances says yes – but only over a fairly short term.[/i]

    Trent, if your answer is “yes, for a short term,” then the answer really is no, you can’t afford it.

    Think of it this way: Can you afford to live at the Four Seasons? Maybe for a week, which means, you can’t afford to live there. And with a long-term disability, you can’t check out and go home.

  31. Michelle says:

    i have been researching various companies for awhile. it was difficult to find a broker/ agent that sells disability insurance or get a straight answer. i found Met Life very helpful. i will be signing up with them as we speak today.

  32. Trent Hamm Trent says:

    “My iPod”, if you read the rest of the article, you’d realize I came to the same conclusion. The “short term” part means that I have a very large emergency fund that could fuel us through at least a year, so I don’t need to get LTD insurance that takes effect immediately – I can get some that takes effect after a few months.

  33. jtimberman says:

    Trent,

    Get a quote from Zander Insurance[1] – endorsed by Dave Ramsey[2] for long term disability insurance and more (life, id theft, etc). They draw quotes from dozens of insurance companies, at very good rates. I was able to get LTD @50% of my salary (which is pretty decent) for about $500 a year.

    As someone else pointed out, LTD is the most underinsured area, so don’t delay and go to Zander for a quote.

    [1] http://zanderins.com/ – click instant disability quote

    [2] Dave believes LTD is so important he buys it for all his employees as a benefit.

  34. Sharon says:

    The costs of replacing the services provided by a stay-at-home parent are staggering, too, and BOTH partners need disbility insurance. It is available, and people need to have both employer provided and a private disability policy. Relying on the employer policy doesn’t work if you are laid off the day the bus hits you.

    Under NO CIRCUMSTANCES buy disability insurance from Unum-Provident. They have a long and disgusting history of denying claims and abruptly stopping payments in the outside situations where they start.

    If your employer purchases coverage through Unum-Provident, do your research and get them to change to an honest provider.

    If you are in good health, line up a policy TODAY. It takes very little to become uninsurable, and in all fairness, if you try to game the system by waiting until you have symptoms you are just plain cheating.

    Also, when you buy life insurance, if you are offered a disability rider, where they will pay premiums should you become disabled, sign up for it. It is very cheap and can save you a fortune. My husband became totally disabled 9 months after getting life insurance, and hasn’t paid a penny in premiums since.

    The other thing to be careful of is to get ENOUGH disability insurance. Your expenses will go up, and if you can get a policy that will let you raise the limits later it will be a major difference in your financial survival.

  35. Beth says:

    you can also check out the rates with Primerica. Very competitive rates and excellent service. Yes, I am a licensed rep. Check it out.

  36. Beth says:

    Primerica is another great company. Check out the rates and service. Yes, I am a licensed rep.

  37. George says:

    “For example, the American Council of Life Insurers claims that one third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days.”

    After working for 15 years with the same employer, since age 30, it seems that as coworkers hit age 45-55, they’re BOUND to need surgery and a 90-day recovery period. I’m actually surprised that the number is only 1/3.

  38. Dawn says:

    In the past year, I have had 3 friends under the age of 35 become totally or near totally disabled. Two contracted cancer and one was injured in a motorcycle accident. Afterwards, each has told me or my husband that they really wished they were covered because not only have they lost their own income, but they now have significant medical expenses that their spouses or families have to cover. Bankruptcy is crossing the minds of the two who are married. Oh, and these are people who were well prepared for “normal” emergencies, had substantial life insurance, and were otherwise financially responsible.
    I will never understand why people think life insurance is a necessity, but disability insurance is not. At least if you die, no one is stuck having to care for you at significant personal and/or financial cost to themselves or your family. With a disability, it isn’t just the loss of income, it’s the increase in expense, too. Nothing gives me more peace of mind every month than knowing I am fully insured in this area and my husband is too. It’s one bill I’ll gladly pay.

  39. dj says:

    My sister has recently been diagnosed with a nasty form of leukemia at age 61. She did not take LTD with her employer and is now looking at a very shaky financial future. Poor choices made just because you are healthy NOW may really impact your future! I have always taken LTD and have now reached the stage in life where I will start taking the “buy up” offered by my employer at our next open enrollment.

  40. Byron Udell says:

    Here are some facts as to why you should have long term DI.
    •Odds of a disability are nearly 3 times greater than death between the ages of 25-65
    •At age 37, the odds of becoming disabled are 3-1/2 times higher than that of death
    •1 in 3 Americans age 35 to 65 will suffer a disability lasting at least 90 days
    •48% of all home mortgage foreclosures are due to a disability – only 3% are due to a death of the breadwinner
    •1 in 4 families that filed for bankruptcy protection identified an illness or injury in their family as the major reason for the bankruptcy

  41. Beth says:

    Please be advised that that 1 in 7 who are disabled for more than 90 days includes women who take off after a pregnancy. If you subtract out the normal pregnancy time off, it’s a very differnt number, which is very difficult to get since only the insurance companies have tracked the info.

  42. Kim says:

    I was recently diagnosed with cancer and had to go out on medical leave. I’m most grateful that I have a disability policy that includes a caner benefit! I’m totally out of sick leave and being a teacher, our district doesn’t have a “leave bank”. Before I left to go out on leave I wrote an e-mail to the staff begging them to get screened, cancer doesn’t run in our family, and to purchase the insurance. I can’t stress it enough! There’s no such thing as “I can’t afford it”. Nobody can afford NOT to have it. The premium for such a policy is pennies compared to the financial disaster I’d be in if I didn’t have coverage. I’m also single and own a home, too. Remember, your expenses go on. Not all jobs have “leave banks: which I feel are wonderful ideas but not practical. Also, I found out that donating to a “leave bank” is strictly voluntary and there’s only so many hours/days that a person can donate. Our district doesn’t have a “leave bank” because of concerns regarding how it will effect people’s retirement. As somebody stated in a previous posting, a disability can also result from a car accident or an accident at work, as well as an illness. Please don’t gamble on the notion that “It will never happen to me”. A disability is something that can happen to anybody.
    What a disability policy does is “plug up the holes” if you don’t have an emergency fund or your funds run out. Medical insurance pays for treatment, but it doesn’t pay the mortgage or buy the groceries.

    Take it from those of us who have been there, buy the long term disability insurance. The home, the relationship etc. that you save will be your own!

  43. Noelle says:

    I know this is an old post, but I’m a new reader to this blog, and I just started working as a financial adviser for MassMutual, so I came across this post because I’m researching how people feel about disability insurance. One thing I noticed none of the other commenters mentioned: when you have disability insurance through work, you usually don’t own the policy. That means you can’t convert it when you change jobs, and you have to pay taxes on the income, making your 60% salary even lower. (And that’s 60% of your pre-bonus and overtime pay.) If you buy your own policy, the monthly payment is tax-free, and you own it for as long as you pay your premiums.

    If you want to save money on the policy, a good rep can find a way to do it by lengthening the elimination period, or taking into account the partial payments you may be getting from work. Also if you buy from a mutual company (like mine), you will likely receive a dividend on your policy. We also rate our policies as “own occupation” which means that as long as you can’t do YOUR job, you get the benefit. If you want to rely on Social Security, it’s “Any Occupation” which makes you SOL if you can still flip burgers.

  44. Sheila says:

    As someone who is on social security disability, people should know that in many cases, it’s extremely difficult to qualify for SSD and usually people are rejected the first time. I qualified the second time I applied, when I was over 50–I think the combination of 1) being better prepared with my application and 2) being over 50 is what helped me get SSD. Someone mentioned $1500 – $2000 for SSD. I wish! Because of taking time out to care for children, I had a spotty work history so my amount is very small.

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