Is Short-Term Disability Insurance Worth it?

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You probably pay for car, home and health insurance if you don't receive the latter through your job. If you have a family, you likely purchased life insurance. There's another important type of insurance that's often overlooked -- until life throws you a curveball. That's short-term disability insurance, and without it, your financial situation could change drastically if you're injured or sick.

Warning

  • Your odds of becoming disabled from a non-job related cause -- leaving you ineligible for workers' compensation -- are about 25 percent over your working lifetime. Disabilities lasting three months or more occur more often in women than men.

Disability Insurance Sources

Your employer may provide short-term disability insurance as part of your benefits package, but the amount may not prove sufficient while you recuperate. If you're an independent contractor, you might buy it through professional organizations, but for many the only option is to get it through a private insurer.

Employer Disability Coverage

If you receive disability coverage through your employer's plan, you may find yourself paying a higher proportion of the premium than in the past, or only receiving long-term coverage. However, even if you have to pay the entire premium, it's far less expensive to buy short-term disability through your employer's plan than on the open market.

State Short-term Disability

If you live in a state that requires employers to provide short-term disability benefits, your choice is easier. However, only a few states offer this option. As of the time of publication, these are:

  • New Jersey
  • New York
  • California
  • Hawaii
  • Rhode Island

Considerations

If you have enough savings to cover your living expenses for several months, or you could live comfortably on a partner's income for a while, disability insurance may not be a priority. While young people are most likely to lack disability insurance, for many temporarily moving back in with parents may make more sense.

Purchasing Disability Insurance

Disability insurance isn't cheap, and like anything else, you get what you pay for. A good policy can cost between 1 and 3 percent of your annual income. Some lower-cost policies may only cover specific temporary disabilities, such as those resulting from accidents rather than illness. There are ways to save on costs while still retaining the value of the insurance. These include:

  • The benefit time frame generally allows you to choose benefits from a period ranging from two to 10 years, or until you reach retirement age and collect Social Security. The longer the time frame, the more you'll pay.
  • In the elimination time frame you can choose when your payments kick in, with periods ranging from 30 to 365 days after your disability occurs. The longer the time frame, the less you'll pay.
  • Unlike most policies offered by employers, private disability insurance doesn't pay a specific percentage based on your income. Instead, you choose the benefit amount you want and pay premiums reflecting that amount.

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