Is Disability Insurance Worth It?

!±8± Is Disability Insurance Worth It?

Whether we like to believe it or not, we are far more likely to suffer from a disability than we are to die prematurely during our working lives, regardless of our age (we assume that working lives are 65 and under). Although the statistical probability of death rises with age and narrows the probability gap between disability and death, the fast fact is that if we have only thought of insuring our lives, we exposing ourselves and our families to a huge risk: lost income as a result of disability.

The reality that disability plays in our financial lives is a real one. So real in fact that insurance companies have seen tremendous growth on the disability side of their book of business. It is a good albeit expensive product that nearly everyone under the age of 50 (or even older depending on debt levels and other financial responsibilities) should investigate.

But the other reality is that not all disability policies are worth the paper they are printed on. In fact, many disability policies will charge way more than the minimum benefit you will need, making them a waste of money, either entirely or partially. Here are some of the things you need to consider before considering a disability policy:

- How long before the policy kicks in? Some policies will not take effect until some other form of insurance runs out, such as a short-term policy through your employer or group policy. Other policies may only take effect after 90 days of disability, leaving you short for those first three months, which may also happen to be the most financially draining. Others yet will only "top up" what another policy does not cover (e.g. your employer-sponsored policy may cover just 60% of wages, meaning the stand-alone disability policy may only cover up to 40% to make up the difference... strangely, those premiums are not reduced accordingly).

- How long is my maximum benefit? Many disability policies will cover you up to a maximum number of months. In the case of a disability policy that will only cover you for twelve months, consider that the average disability for people under the age of 40 is thirty six months... your twelve months of coverage will help for just one third of disability period. Know what the benefit is and determine whether it is sufficient (you may not "need" a full 36 months of coverage if you work in a low-risk office environment, but it sure will not help someone who is prone to back injuries).

Knowing these two things is a good start, but there are other specifics that may apply to you (such as premium reset periods, disabilities covered, qualifying criteria, underwriting method, and so on). A good place to start is with the policy itself. If you need help interpreting the wordiness, consult with a broker and don't be afraid to contact the insurance company directly with concerns. Get your answers in writing, on letterhead so that you are not left stranded in the event of a claim.

Although disability insurance is popular for a very good reason, it is very expensive. That makes it even more important to make sure you understand everything you possibly can about the policy before spend your first dime in premiums.