Disability Insurance: Yes, You Need It - The Broke Professional

Disability Insurance: Yes, You Need It

Insurance is one thing that everyone needs but very few want to sign up for.  And people who sell insurance aren’t exactly the most beloved people on the planet.  But the fact remains, we all need insurance.

There are many different types of insurance.  Everyone is familiar with car insurance and health insurance.  Life insurance is another important one.  (I previously wrote about my life insurance experience here.  Hopefully we’ll never have to use it but I’m glad it’s there.)

The thing with insurance is that we only need it when we need it.  But those times of need can be highly stressful on your family and finances.  Just think of the last time you or your family member got into a car accident.  Insurance was the last thing on your mind, but if you had good coverage, it really gave you piece of mind when the dust settled.

Which is why I highly advocate that everyone, especially high income professionals, get disability insurance.  Not only does it insure against the main engine of your life (your income), but the chances of becoming disabled are much higher than most people think.

Don’t Take A Chance

I’m an optometrist.  Anyone who has been to the optometrist knows that optometrists don’t have one of the more dangerous occupations out there.  It’s a pretty safe environment to practice.  I also am currently devoid of any major health problems such as high blood pressure and diabetes.  And I don’t do skydiving.  So it would seem my chances of a disability are pretty low.

But according to the calculator from the Council of Disability Awareness, I have a 13% chance of being disabled for 3 months or longer at some point in my life.  And the average length of a long term disability for someone with my profile is 78 months.

That’s 6 and a half years of no money being made.  I don’t think there are many families out there that could live off of savings for that amount of time.  This is why disability insurance is so important.  Not having it is putting you and your family at a very great and very real risk.

Like most insurances, disability insurance is a complex product with a lot of moving parts.  Most people would do well to talk to an independent agent and get as much information as they can.  There are also many online providers out there that will help you sign up for disability insurance.  I signed up with Quotacy, who I also used for life insurance.  The process was easy and the agent was very helpful every step of the way.

But two very important aspects of disability insurance, especially for high income earners, is knowing how much insurance you need and making sure you have a policy which gives you the most specific definition of being disabled, namely an “Own Occupation” policy.

How Much Should You Buy

Once you decide to sign up for any type of insurance, the next big question is to decide how much insurance you need.  Disability insurance is no different.

If you’re deemed disabled by the insurance company, they will pay out a monthly amount for the amount of time you remain disabled.  The question to answer is exactly how much of a benefit to sign up for.

Most people would assume that you should apply for a monthly amount similar to what you get paid while working.  This is not a good idea for a number of reasons.  One, insurance companies usually won’t even let you sign up for a monthly amount that meets 100% of your income.  They may come close, but that would make your monthly premiums very high.  Most insurers will limit you to 70 or 80% of your income.

Secondly, you probably won’t be spending as much money when you’re disabled as you do when you’re uh, abled.  Things like eating out and traveling probably won’t be on the top of your list as a disabled person.

Instead, you should focus on what you spend.  Tally up your fixed and necessary expenses like rent, food, electricity etc.  Add some for retirement savings if you would like as well.  This is how you should find an appropriate amount of insurance to sign up for.  Being overinsured will just lead to much higher monthly premiums and more money than you could possibly need while disabled.

Own Occupation FTW

Finally, a key aspect of disability insurance is the specific definition of disability by the insurance company.  The worst case scenario is that you become unable to do your job for some reason and the insurance company doesn’t pay out any benefits because you don’t meet their definition of a disability.

The way to avoid this is to look for an Own Occupation plan.  This is especially important for high income professionals like doctors and lawyers.  While they can come in slightly different flavors, an Own Occupation plan in general states that you are disabled if you can’t perform the duties of your specific occupation.  It is a strict definition and this is what you want in a disability plan.

For example, if a doctor and is disabled and can’t perform his duties, an own occupation policy would consider this a full disability and start making monthly payments.  But if the doctor didn’t have a specific Own Occupation policy, the insurance company could contend that he could do another job like a grocery store cashier or a suit salesman, and would refuse to make the monthly payments.  That sounds like a bad situation.

So it’s in your best interest to get a policy that has a definition of disability that is specific for your profession.  Specialists like surgeons should look for even more specific Specialty Own Occupation policies.

Conclusion

Disability insurance is a vital part to any working professionals insurance portfolio.  Becoming disabled is actually more common than people think.  Something as simple as a fall can cause a total disability.  It is essentially income protection in case the unthinkable happens and you aren’t able to work for an extended period of time.

Pay attention to your expenses when deciding how much insurance you’ll need.  You probably won’t be spending as much money while disabled.  Also, it’s important to sign up for an Own Occupation policy to ensure you will get the proper payout.

Finding disability insurance isn’t as easy as car or life insurance.  But it’s not that hard.  I used Quotacy and it was pretty easy to do it online.  You can also look for an independent agent that will shop policies for you as well.  A good policy isn’t as cheap as life insurance, but it is not too expensive and is definitely worth it for peace of mind for you and your family.

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