What Happens if You Can’t Work?

Man with his arm in a plaster cast writing

If you read my last post about life insurance and you’ve joined me again, thank you. Really, I am very thankful for your time and I hope these posts bring you value. Now, let’s get cooking. If you didn’t read the last post here’s question I asked, “Why do you have life insurance?” There are many valid reasons why someone has life insurance, but I think it’s funny that we call it LIFE insurance. I get it, but think about it. Do you buy life insurance because someone or something is literally dependent on your life? Like your heartbeat is the determining factor of the success of something or someone else. NO, that is not it at all. Life insurance is there because someone or something is dependent on you being alive so that you can earn income or provide value to the family. Think of it this way – if your income was guaranteed to pay out until age 67 whether you were alive or not, would you still buy life insurance?

So, what happens if you’re still alive but you can no longer earn income? Why do we spend so much time and money on life insurance but give no thought to what would happen if we were to become disabled.

69% of private sector workers do not have long-term disability coverage! That is a huge percentage of people. To throw another statistic at you – 1 in 4 people in their 20s will become disabled in their working years. To clarify, disabled means you can no longer earn your income. So, let’s think about the math. You stop earning income, but you’re still alive and need more care than before. Normal life – income + increased expenses = up the proverbial creek. If you have determined you need life insurance, you probably need disability insurance as well.

There are a lot of factors that go into deciding IF and HOW MUCH coverage you need so I highly recommend you talk to a professional about your personal situation. I hope you call us, but at least call someone. Today let’s assume you don’t have coverage and need some. There are two definitions you should know.

1) Short-Term Disability: Short-term disability coverage is just like it sounds; it generally starts to pay-out 2 weeks after your loss of income, but will generally only pay-out for around 6 months, then it goes away.

2) Long-Term Disability: Again as it sounds, it generally doesn’t start to pay-out for 90-180 days after your loss of income, but can pay-out all the way till age 65.

Which do I recommend? I am not a big fan of short-term disability insurance. I want you to have an emergency fund that would cover around 6 months of expenses. Then, in the case you become disabled, you would not need insurance to replace your income for 6 months. If you are a dual income family you can stretch that emergency fund out a little further. On the contrary, having long-term disability is a no brainer. Becoming disabled is a bigger financial risk to your family than dying! Sorry to be blunt but seriously, if you are disabled, you can become a drag on your family financially. Here are some things you need to know if you are not covered.

First, just like life insurance, you need to do a needs analysis. Most long-term policies will pay-out 60% of your current income (keep in mind that if you are paying your premiums yourself, that 60% payout is tax-free). 60% is probably close to your take-home pay now. However, if you are one of those super budgeters that live on much less than 60% of your income, then you may not need to pay for coverage that high.

Second, brace yourself. Disability insurance is not as cheap as term life insurance and it can get a bit complicated. Try to work with someone that is committed to educating you on all the options before making a recommendation. Industry terms like Owner Occ., Partial Occ., and others will get thrown around in your decision-making process and you need to understand what they mean in order to make the best decision.

Ultimately, if you have a need for life insurance because someone/something is depending on your income, you probably need disability insurance too. It’s not fun to talk about  but if something happens you and your family will be grateful you took the time to discover what’s right for you. If you find you need a partner for this, we would love to help.