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?