Why You Don’t Need Disability Insurance
The Myths We Hear About Why You Do Not Need Disability Insurance (and why the myths are wrong)
Shopping for Disability Insurance and considering your need for it is not the most fun thing. Then you have to make a commitment to pay for a valuable coverage you hope you never need to use. It’s tough! So people make excuses for why they don’t need Disability Insurance. Here are the top four myths we hear. And the facts on why they are wrong.
Myth: “I have DI coverage through work.”
Reality Check: You sure? What does it cover?
Disability insurance through your job is a nice employee benefit, but what does it cover? Is it short-term coverage only? (maybe just 3 months) Or is it long-term coverage? What percentage of your monthly income would it send you as benefit if you were disabled For how long? (we will be happy to review your coverage and help you compare)
What we find usually is a decent plan, but without many of the promises individual Disability Insurance providers make. And rarely can you take the coverage with you when you change employers. Individual DI coverage can fit your needs more closely, and remain with you for your entire working career.
Another detail to consider….if your employer pays for the premium costs of your group DI coverage at work then if you were disabled and began receiving benefits, those benefits would be taxable as income! (when you pay for your own Disability Insurance premiums any benefits would be received tax free)
This is so important to understand! Let’s compare two nurse practitioners, one whose employer pays for her coverage, another who purchased her own DI coverage:
Nurse practitioner #1 whose employer pays for group DI coverage, $7,900 gross monthly income
DI Benefit (60% of gross) $4,740 monthly
Pays Federal / State tax on benefit, at 25%. Remaining monthly benefit to use for bills, savings, etc.: $3,555 monthly
Nurse practitioner #2 who purchases her own individual DI coverage, $7,900 gross monthly income
DI Benefit (60% of gross) $4,740 monthly
No taxes owed, 100%. Remaining monthly benefit to use for bills, savings, etc.: $4,740 monthly
Which nurse practitioner has more monies to fund her family budget each month? The nurse practitioner that purchased her own Disability Income Insurance policy.
Remember, if you were sick or injured and unable to work, it’s your disability insurance that would replace a portion of your paycheck until you could work again. Make sure it’s enough to help you make ends meet. If your group coverage is not, consider an individual disability insurance policy.
Myth: “Worker’s Comp. covers that.”
Reality Check: Yes, at work. What about the rest of the time?
States do require employers to provide Workers’ Compensation coverage that pay for lost income and medical expenses when you are hurt on the job (note, many small employers are not required to offer it, and many business owners are exempt from Worker’s Comp. coverage). But you do not work 24 hours a day! What about the other 16 hours of the day? If you are injured away from your workplace Worker’s Comp. does not apply. Disability Insurance would.
The fact is that the vast majority of long-term disabilities are not job-related. Disability Insurance is coverage 24 hours a day, 7 days a week, 365 days a year.
Disability Insurance offers benefits to help you fund your family budget whenever a disability occurs, not just at work.
Myth: “I don’t work in a dangerous profession.”
Reality Check: OK, but 90% of DI claims are illness related, not due to injury
This is a common misconception people have when thinking about whether they need to protect their paycheck with Disability Insurance. But the truth is, illness (90%), not accidents (10%), account for most disabilities that keep people out of work. So you are more likely to be disabled from cancer, a mental health disorder, etc. than from a car accident.
Disability Insurance doesn’t cover just one or the other. If you become sick or injured, and unable to work, the coverage would step in and replace a portion of your income until you could work again. In short, Disability Insurance is income protection for injury and illness.
Myth: “I am young and healthy. I don’t need Disability Insurance yet.”
Reality Check: Disability Insurance does not discriminate on the basis of age.
One in four of today’s 20-year-olds will become disabled at some point in their career, before age 67. And those disabilities do not just occur at the upper age spectrum. That’s a pretty big risk to take. How long would you be able to meet your rent or mortgage, car payments, bills and other monthly expenses if you couldn’t work?
Disability insurance is there for just that reason. If you were sick or injured and unable to work, it would replace a portion of your paycheck until you could work again. Think of it as insurance for your paycheck.
