Disability Insurance - Do I Need It?

Susie Valentine
Oct 19, 2020

Reclaim your health with us!  This article helps you understand disability insurance and covers:

  • What is disability insurance?  
  • Do I need disability insurance?
  • Where do you purchase disability insurance?
  • What’s the difference between short-term and long-term disability?
  • What is an elimination period?

If you’ve ever scoffed at the idea of buying disability insurance, you’re not alone.  It’s understandable to think of it as something you’ll never actually end up using and therefore don’t really need.  But believe it or not, 1 in 4 workers will experience a period of disability before they retire, and a “disability” doesn’t always mean an injury due to an accident.  A disability is any medical condition that prevents you from working.  Most disabilities are caused by chronic conditions like back injuries, cancer, and heart diseaseIn fact, depending on how robust your employer’s parental leave policy is, you may even have to resort to disability insurance to provide you with income after your leave period ends.  

If you couldn’t go to work for several weeks or even several months, would you still be able to cover your cost of living and pay your medical bills?

When you first signed up for health insurance through your employer, you probably also had the option of signing up for disability insurance.  This type of insurance provides you with part of your income if you’re unable to work due to a personal injury or accident that isn’t work-related, or for mental health reasons.  If you neglected to sign up for disability insurance when you first started your job, don’t worry; you always have the opportunity to do so during open enrollment.  For those of you who are self-employed or run your own business, you can still purchase disability insurance on your own through companies such as AFLAC, Colonial, Nationwide, and AARP, just to name a few. 

Disability insurance comes in two forms: short-term and long-term.  Short-term disability usually lasts between 3-6 months and covers 80% or less of your gross pay.   The cost of short-term disability can be fully covered by your employer or you’ll have to pay a monthly premium.  Long-term disability kicks in if you’re still unable to return to work after short-term disability, and lasts for up to 2 years, covering 60% of your gross pay.  Some long-term policies are quite long, lasting up to 10 years, though these aren’t common, as they are extremely costly for the employer.

The biggest difference between short- and long-term disability, besides the coverage period, is when it kicks in.  While short-term disability kicks in immediately after you’ve used up all your accumulated PTO, long-term only begins covering you after what’s called an elimination period, or waiting period.  A typical elimination period is 90 days but can be as long as 180 or 360 days, depending on your policy.  Short-term usually serves as a way of keeping workers afloat while they’re waiting for long-term disability coverage to start.  For this reason, many folks purchase both types of coverage to work in tandem with each other.

Most employers don’t put too much thought into their disability insurance policies; they are usually bundled with their payroll carrier along with a life insurance policy for their employees.   If you’re unfortunate enough to have to use these policies, make sure you read the fine print.  As an executive director of a small family medical practice, I made the mistake of not looking into our disability insurance vendor and didn’t realize that there was a six-week waiting period between short-term and long-term disability on our policy.  This meant that if we had an employee who needed disability insurance, they would have to wait six weeks with no pay before long-term started to pay a portion of their income.  Needless to say, we changed vendors! 

Please be mindful that if you leave your job or are downsized, your disability insurance policies do not go with you if they are provided by your employer. For this reason, it may make more sense to purchase private long-term disability that can be carried with you from job to job.  Private short-term disability insurance is typically just as expensive as private long-term disability, despite having a shorter coverage period, so it is likely not worth your money.

As for when to invest in disability insurance? It’s best to do it when you’re younger, as that’s when it’s cheapest. Buy it early, and if it’s private long-term insurance, you’ll be able to take it with you wherever you may go in your career and your life.