Thoughts on Long-Term Disability Insurance?

[elessar78]

I'm currently reading Two-Income Trap by Elizabeth Warren based on recommendations from other posters on this board. Great read btw.

In it she discusses the idea of having private long-term disability insurance. Any one have this? Is this a must for the average family? After our recent medical issue that turned out to be a slight bump and reading this book, that we are in a vulnerable state right now. We can save for our emergency fund, but something long-term would wipe us out.

Can anyone speak to the pros and cons on having one? My financial situation is listed in detail in another thread if that affects your answer.

[MonkeyMama]

I would say that yes, the average family should have disability insurance. OF course, few people really do.

Pros? Income for the rest of your life, or the rest of your working life (depends on the policy how long it lasts).

Cons? Well, it cost money. The cost just depends on what industry you work in and what options are available.

We have both short-term disability and long-term disability - we don't pay much for either. So I don't particularly see any cons. The cons would be if it is really expensive - trading off being able to invest that money yourself in case of emergency. You'd have to evaluate the costs of the policies available to you, and the specifics of any policy (what it covers, how much it pays out, etc.)

[jpg7n16]

Well... LTD coverage covers that gap that is terrible to be in.

If you die, life insurance pays out. If you live, it doesn't.
If you are sick, medical insurance pays for the hospital bills, but if you're sick, you can't work.

When/if you run out of sick days, but still physically can't work, what are you supposed to do for rent? Your life insurance policy won't pay you anything, cause you're still alive. And your medical policy won't pay you anything, because it covers medical costs, not rent. And you can't file unemployment, because you are employed. What are you supposed to do?

LTD coverage will help cover your loss of income and you need it if people are counting on that income. If you don't think you need it, ask 2 questions: 1) have you ever heard of someone being in a bad car accident? 2) have you ever heard of anyone getting cancer? - those are the primary causes, disability from some injury, or disability from sickness (cancer or otherwise)

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As MM points out, the main con is the cost. Insurance is odd in that it's the only product you pay for, that you hope you never have to use. You buy car insurance, but hope you don't get in a wreck. You buy homeowners insurance, and hope your house doesn't burn down. Likewise, you buy LTD coverage, and hope you're never disabled long term.

The other main con is that you won't get covered at 100% of salary. Standard is 50-60%. This is just more of a practical matter really. I mean, what incentive is there to get healthy when you're getting paid 100% of your normal salary to be "disabled"?

But being disabled usually comes with increased medical bills. And only getting 60% of your salary during that time can be rough. Though it's better than getting 0% of your salary...

[elessar78]

Thanks you two. That's really helpful info. I was doing research on it last night and it seems like a great thing to have. I have a desk job, so hopefully my costs aren't too high.

Our recent travails are causing me to analyze our current financial status in detail. My wife being unable to work, ineligible for disability or unemployment (which we didn't need, but would've found helpful) made me realize that we need a bridge or some other source of income.

50-60% is not bad at all, our lifestyle is pretty simple and we could def. cut our costs down considerably if needed. Thanks, I sent out some feelers on getting quotes.

[elessar78]

I did a quick quote request and our annual premiums would be around $1400/year. Eventually, I think that's imminently affordable (once we get our financial house in order) but not currently.

Is it wise to just have some form of it, even if it doesn't reflect our actual income? I think I can just add additional policies down the road to get to the number we want, right?

[MonkeyMama]

I think some insurance is better than none.

I just wanted to point out that the reasoning of disability benefits not being 100% of your salary is that they are not taxed. So, the benefits should be comparable to your take-home pay. There would be no social security or income taxes withheld from benefit payments, and perhaps the policy covers you enough so you do not have to save for retirement. In that case, 60% of income should really be ample.

[Shewillbemine]

My mother always preached that she'd rather have Disability Insurance versus Life Insurance. If you die, at least your worries are over (assuming you aren't leaving the family with debt; even then, you're still dead).

But if you're disabled with no income...whooo boy.