When I was in my early twenties a grad student at my University drowned. He left behind a widow and a small child and no life insurance. They had been living in University housing and his new widow was left homeless.
When we had children I made sure my husband and I each had life insurance.
These sorts of tragedies are really visible and really dreadful and so life insurance occurs to people like this on a regular basis. But you are more likely to become disabled than to die.
I can give you many stories about people becoming disabled an unable to work at the jobs for which they are trained, but they aren’t dramatic. They don’t have a single MOMENT when they realized they were too tired to do their job because of cancer, they just go too tired to go to work and called in sick until they were fired or quit, never even catching that they were DISABLED until their workplace-based disability plan lapsed. Or they go blind and earn steadily less as a self-employed X as the jobs get fewer and farther between since word got out that their work-product isn’t that good. Or they slide into dementia without ever having the words said and conclude “I’m just too old” for their job. Disability insurance doesn’t have a really compelling narrative around it. No one wants to be disabled. Denial is a lovely and emotionally rewarding stance to take. You aren’t going to hear co-workers chatting around the water-cooler about how fantastic it is that So And So had disability insurance. By the time So And So claims disability, his co-workers have already written him off as a screw-up. Not like them. People want to think that only OTHER people get disabled.
Here’s the thing. Disability can befall anyone. You can hurt your back in a car crash. You can get macular degeneration. You can screw up your brain chemistry or blow out your knee or come down with cancer. Disability insurance isn’t perfect, but it’s worth having. Make sure you get some, and if it’s through work, make sure you check it out if you’re on the verge of losing your job because of a wellness issue.
There are finer points to discuss in disability insurance. “Own-occ” versus “Any Occ”, waiting periods, coverage amounts. This is interesting when you are doing price comparisons, but don’t get bogged down on them. (My short version: “own occupation” is what you want to insure, get about 60% of your salary covered if you can, and have the waiting period be equal to the amount of months your emergency cash will cover.)
You need disability insurance if you are working and others count on your income. You may have trouble getting it if you’re self-employed and almost certainly can’t get it if you’re unemployed. You may get it through your workplace, but it’s a good idea to just buy it on your own so that you can continue it if you’re unemployed or self-employed. It’s not the same thing as long-term CARE insurance. However, it’s similar to – but much better than – social security disability insurance (SSDI). SSDI is the bottom rung in the safety net and is only available if you are unfit for ANY occupation, including bag boy at the grocery store. Anyone with reading this far into this blog isn’t someone who wants to fall that far down the safety net.
I’m not 100% sure where to shop for disability insurance. My husband gets his through a workplace plan (we pay extra through his salary withholding to improve the benefit) and I bought mine back when I was a software engineer about to be laid off, knowing I would be self-employed and would want to own the policy myself. I got mine through Northwestern Mutual Life and I’ve been happy with it, paying my premiums personally every quarter for the past twenty-five years.
Insurance isn’t a good investment for most of us. It’s simply an expense. Health insurance doesn’t cost what it costs because we used ambulances, it costs what it costs because ambulances were standing by even when we weren’t using them. It’s risk mitigation. It’s not something you ever really think about until something horrible happens, and then you wish you had gotten it.
So, here. Think about it. Because shit happens.
Originally written January 20, 2015 by Wendy Marsden, CPA, CFP®