Think you're immune to accidents? According to the U.S. Social Security Administration, 20-year-old workers have a 1 in 4 chance of becoming disabled by age 67. In fact, the average American drawing Social Security disability insurance benefits is 50 years old. The average Social Security Disability Insurance (SSDI) is only $1,113 per month. Is that enough to cover living expenses? For most of us, the answer is likely no.
Myth: I can rely on workers' comp
Many people mistakenly think so. According to the Council for Disability Awareness, a small fraction of disabilities are covered by workers' compensation insurance, and the benefits are often temporary. Similarly, qualifying for SSDI can be difficult, and approval can take months.
What's the solution?
For maximum protection, make sure you have both short-term and long-term disability insurance. Many employers offer short-term coverage that will typically replace around 40-60% of your income for three to six months while recovering from a temporary disability.
As the name implies, long-term coverage provides you with income during a lengthy or permanent disability. These benefits usually start three to six months after a person becomes disabled and can continue for a period of several years or until age 70. For additional protection, consider augmenting this coverage with a personal policy.
What should you look for in a policy?
Here are some considerations:
- "Disability" definition: Must you be unable to perform your regular job or any job? Be sure you understand the definition.
- Onset of benefits: If your savings can cover several months of expenses, reduce monthly premiums with a longer waiting period.
- Partial benefits: These can provide you with some income if you can't work full capacity.
- Cost-of-living adjustment (COLA): Adding a COLA option will increase benefits to keep pace with inflated living expenses.
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