After much research and deliberation, my husband and I recently took the plunge and signed up for long-term disability insurance. It was an odd expense, really. In the real world, I don’t actually know anyone who has it. In fact, I had never even heard about it until researching healthy financial habits online. Neither of our workplaces offer these plans, and I found out that many organizations don't include them in their policies.
Unlike auto and health insurance (which is talked about nonstop), you don’t hear much about disability insurance beyond basic FMLA.
But, let’s put it this way: long-term disability insurance makes a lot of sense for most working adults. And, if you have a family that depends on your income, it’s even more important.
I’m not a salesman here, but I think it’s important to advocate good habits when I learn about them. In exploring disability insurance, I found these harrowing statistics: Research shows that 1 in 3 Americans will face a disability (for at least 3 months) before age 65. That’s a 33% chance, and even with an excellent emergency fund, many of us are simply ill-prepared to manage decades of living without work income.
I’ll be honest: my husband and I both make good incomes. We work hard, we value our frugal lifestyles, and we consider ourselves “financially secure.” With that said, we know that our health plays a large role in being able to maintain this inherent privilege.
The Internet makes it so easy to shop around for different plans. We used Insudinary, which helped aggravate different quotes and made it easy to parse out the best option for us. We both had to complete extensive medical interviews over the phone, but that's standard protocol.
Ultimately, we went with a long-term disability plan that starts paying out at 365 days (as we have emergency funds that should cover a full year of both of us not working). This is known as the elimination period, and it can start as early as 90 days. The shorter your elimination period, the more expensive the plan.
Our benefit amount will pay out 60% of our pre-tax monthly salary. We also have own-occupation riders, meaning that the policy will examine whether we can work in our given profession (and not just any profession). To us, this is important, as we have specialized careers with advanced education and training in a particular skill set.
Our policy will pay out until retirement, although we may cancel it if and when one of us retires early (which is an ideal plan for us).
We spend about 1.5% of our combined annual salary on our long-term disability insurance. This may seem costly, but it’s been worth the peace of mind. We can’t control our futures, but we can prepare for the worst case scenario and protect our loved ones. And that’s worth the price we have to pay.