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Ask Dave

Not Enough People Have Disability Insurance

Tim asks if Dave recommends disability insurance. Dave says yes and explains why.

QUESTION: Tim on Twitter asks if Dave recommends disability insurance. Dave says yes and explains why.

ANSWER: Sure. You’re 20 times more likely to become disabled than to die—if you’re 30 years old—before you’re 65. Most people know they need life insurance. Most people get life insurance. Not enough people have disability insurance.

I don’t believe in short-term disability insurance. You need an emergency fund and to get yourself out of debt. That covers your short-term issues. It’s the long-term disability that scares the crud out of me. As a matter of fact, that’s probably the worst financial thing that can happen to my family. They’ll be fine if I die. They’ll be fine if I don’t. But being disabled would be not only a drain on my family financially, it would obviously stop the income that I create. That’s why disability insurance is so important.

It’s not that expensive in a group setting. It’s one of the few benefits that I provide 100% for our team. I do not provide 100% of their health care. I provide most of it, but they participate in the health care because as it goes up, I want them feeling the pain with me. I want them to know what’s going on in the health care world, so they pay some of their health care. I pay 100% of disability insurance. That’s how important it is. If you can buy it through work or if work furnishes it, that is by far the cheapest thing to do with disability insurance. If you’re buying it in the open market, you’re going to find the prices based more on what you do for a living than it is based on your age or medical condition or physical condition. Life insurance is based on age and physical condition. With long-term disability insurance, a high-rise window washer really can’t afford the insurance versus someone who drives a desk for a living.

If you are in a blue-collar setting of some kind, then you may want to check through your association. For instance, if you’re a contractor, you might check the Homebuilders Association. Sometimes, you can find better deals on disability that way.

The deductible on disability insurance is called the elimination period. From the time you are declared by a doctor to be disabled until you actually start getting money is the elimination period. Most policies are 90 days. But just like with a deductible, if you carry a higher deductible, you can get in some settings a much lower premium.

You want to look for a portion of the policy or a feature of the policy that is called “own occupation,” sometimes “own occ” for short, meaning if you can’t do your own occupation, you are by definition disabled. Most policies do not cover own occupation for your life, but they will cover it for up to two years. That’s what mine has. After that, it would be based on whether I’m completely, permanently disabled, meaning I couldn’t do other jobs.

Learn what your elimination period is, and learn what the features are—if there is a feature—called own occupation. You do want that, by the way.