Figuring out if you need to protect your paycheck—really, your ability to earn an income—with disability insurance is pretty easy. If you have a job and you rely on your paycheck to meet your monthly bills and financial obligations, you need it.
In essence, disability insurance is there if you suffer an injury or illness and can’t work for an extended period of time. It will replace a portion of your income until you’re able to return to work again.
But most people who are working don’t have this basic protection for the long term, and often it’s because they assume they don’t need it. Here are four common mistakes people make when it comes to understanding disability insurance and its importance in protecting your ability to earn an income.
Mistake #1: You think chances are low that you’d ever need it because you don’t work in a dangerous profession, so you pass on coverage.
Reality: The truth is, one in four of today’s 20-year-old will become disabled at some point in their career, according the Social Security Administration (Feb. 7, 2013). While it’s true that people in professions like farming, law enforcement and construction face greater risks, the odds of suffering a long-term disability are high for all workers because illness—not accidents—account for 90% of disabilities that keep people out of work (Council for Disability Awareness’ Long-Term Disability Claims Review, 2014).
Mistake #2: You think that the government will provide you with assistance if something happens.
Reality: It may, but mostly like it won’t or won’t for a long, long time. According to the National Safety Council, 73% of long-term disabilities are a result of an injury or illness that isn’t work related and therefore wouldn’t qualify for state-based Workers’ Compensation programs.
And If you were hoping to rely on Social Security disability benefits, know that about 45% of those who apply are initially denied, and those who are approved receive an average of around $1,100 a month. Plus, they often have to wait several years before those benefits begin. Could you wait several years while receiving no paycheck—and then live off of $1,100 a month?
Mistake #3: You think you could rely on your savings until you could return to work.
Reality: Most people overestimate the resources they have to cover their bills and expenses if they suffered an illness or injury that kept them from earning a paycheck. According to Life Happens’ Disability Survey in 2012, half of working Americans say they couldn’t make it a month before they’d feel the pinch financially.3 Keep in mind that disabling illnesses or injuries often last for months or even years.
Mistake #4: You think you have disability coverage through work.
Reality: Most people don’t: According to the U.S. Department of Labor, more than 70% of employers don’t offer long-term disability coverage. And short-term disability coverage or partial coverage wouldn’t be enough to meet your current and future financial obligations if you were unable to work for an extended period of time. So talk to your benefits manager at work to find out if you have coverage and what type it is.
The bottom line: Don’t let these mistakes trip up your future financial well-being. Sitting down with an insurance agent is the easiest way to work through questions you might have, and they can help you find the coverage you need to fit your budget—all with no obligations. You can also get a working idea of what you might need before you sit down with anyone by using this Disability Insurance Needs Calculator.