Thomas asks Dave to explain disability insurance and whether or not he recommends it.
QUESTION: Thomas on Facebook asks Dave to explain disability insurance and whether or not he recommends it.
ANSWER: There are basically two kinds of disability insurance: short-term and long-term. Short-term disability should be covered by you being out of debt and having a good emergency fund, so I don't recommend short-term disability. However, I think long-term disability is mandatory. You've got to get it.
If you're 30 years old, you're 12 times more likely to become disabled than die by age 65. Everybody knows you need life insurance. There are lots of people walking around without disability insurance. It's a really bad idea.
You want to get disability insurance at work if at all possible. If work furnishes it, that's great. It's actually the only insurance I furnish 100% of to my team. Disability is so inexpensive, I just buy it. If you can get it that way or through your company, that'll be cheaper than buying it on the open market. If you can get long-term disability through an association, you'll get it cheaper. Those are your best ways to do it.
You need to remember your health and your age don't enter into the pricing as much as your occupation does. If you fly a desk, your disability insurance is not going to be very high as a white collar worker compared to a high-rise window washer or someone who does work with his hands in any way. If you're blue collar, you're more likely to become disabled than you are if you're sitting at a desk. They take that into consideration, and you'll see the pricing difference. If you're in a job description that is a risky job, you're going to see some unbelievable disability premiums, and it may be something you can't do or don't want to do. In a lot of cases where you're in a "high-risk job," that's when disability is almost always furnished through or by the employer. If you're a self-employed, high-rise window washer, you're going to have a hard time with that one. Risk enters into the discussion.
With disability insurance, the deductible is called the elimination period, which is the time from the point that the doctor declares you disabled until the insurance company starts paying. The typical elimination period is 90 days. If you want a lower premium, you can take a longer elimination period so you're taking more of the risk.
You're looking for "own-occ," which stands for "own occupation." If you're unable to do your occupation, that then becomes your definition for disability. Most policies no longer do own-occ for life, but they'll do it for a couple of years. For instance, my policy says if I cannot do my occupation, they will pay the disability for two years if I'm able bodied and able to do some other occupation. If I became completely and permanently disabled, I would just get the money the rest of my life.
You look at the elimination period, and you do want something with own-occ in there. The typical policy today is like mine. It keeps them from messing with you during that two-year period of time, so you can get back on your feet, so to speak.