Here’s why I’m asking everyone if they have disability insurance

Usually, monthly meetups with my self-employed friends revolve around the same topics: industry gossip, project updates, and news about family. But recently, our weekly coffee date started with Meg asking a dramatic question: “If one of us were unable to do our jobs, how would our families cope?”

I paused, mid-sip. As a solo mom, my independent contractor status has been a blessing. I have the flexibility to adjust my schedule based on the needs of my toddler. I’ve been fortunate to always have steady income streams from multiple clients, but what if I suddenly could no longer do my job?

As Meg explained her realization that she needed to protect her breadwinner status — her husband primarily watches their child — I realized that I have been missing a crucial element in my own plans to protect my daughter’s future and my own.

While I’d heard of disability insurance, I’d never imagined how it might apply to me, as a healthy, mid-thirties woman. After all, the biggest “dangers” of my job include jockeying for the corner table closest to the power outlets at my favorite cafe; I had never considered that disability insurance could be a great line of defense in the event I become too sick or injured to work for an extended period of time.

While “do you have disability insurance” is an unusual conversation for a quick workday coffee break, I am so thankful Meg asked — and it’s now my go-to line for all my friends and family.

What is disability insurance?

Now that disability insurance is becoming one of my small-talk go-tos for friends and family, I’m finding a lot of confusion on the topic. While many jobs offer group short-term disability insurance as part of their benefits package, many people don’t know if they actually have it in place. And for freelancers or those whose employers don’t offer coverage, it’s a valuable product to understand and consider purchasing.

Disability insurance, also known as disability income insurance, is a type of policy that pays a benefit to replace a portion of your salary if you experience an injury or illness (including, in some cases, pregnancy) that leaves you unable to work for an extended period of time. This type of insurance comes in two varieties – short-term disability insurance and long-term disability insurance.

Every disability insurance policy is a little different, but generally, disability insurance helps ensure that your family still has an income stream if you become unable to work for a qualifying reason. And, it can also be used to replace a portion of lost income during a maternity leave. If you’re unable to work, you run the risk of missing payments on your mortgage, utilities, loans, and other day-to-day bills.

Like life insurance or many other types of insurance, it’s something you hope you’ll never need to tap into, but it valuable to have for those “what if” scenarios. That’s why it’s important to have a firm understanding of whether you’re covered and what your family’s needs may be.

Why do I need disability insurance?

You may think you don’t need disability insurance. After all, if you’re young and healthy, it may be hard to imagine a time when you’re unable to work.

Disability is more common than you might think: 1 in 5 Americans lives with a disability. And, more than 1 in 4 of today’s 20-year-olds are expected to be out of work for at least one year due to a disability. When you consider that 53% of Americans have less than $5,000 in emergency savings, the need to protect from the “what if” scenario of disability becomes clear. Most people can’t afford to be without work.

While disability may conjure visions of hospitals, paralysis, or other catastrophic scenarios, disability can result from a variety of common conditions, including arthritis, cancer, heart disease, depression, challenging pregnancy conditions, or a challenging postpartum recovery.

If you were unable to work following injuries from a car accident or even qualified pregnancy complications, disability insurance can protect a portion your income stream while you’re unable to work.

How does disability insurance work?

There are two main types of disability income insurance, short-term and long-term. The main difference between these two policies is when they begin paying benefits and the length of time benefits can be paid.

Short-term disability insurance

This type of policy, which can often be employer-sponsored, usually provides benefits to cover between 60 to 80% of your income for a period lasting between 3 and 6 months and no longer than one year. However, the percentage and time periods vary by policy. There are types of coverage that may offer up to 100% income replacement, but usually only for a short period of time. This insurance also may cover rehab treatment or physical therapy to help you recover and get back on the job more quickly.

Short-term disability insurance may also cover new mothers, paying a portion of their income for 6 to 8 weeks post-delivery. If you’re planning to start a family, find out what medical conditions your short-term disability insurance policy covers to determine if the policy you have pays a benefit for a pregnancy-related leave.

A common misconception about short-term disability insurance is that it falls under the umbrella of workers compensation. This isn’t accurate. The two are completely separate. Generally, the difference between short-term disability and workers compensation is that workers compensation only covers injuries on the job that meet a specified criteria. On the flip side, if a worker is injured due to designated tasks performed on the job, the claim may be handled through workers comp or a coordination between workers’ compensation and other disability coverage.

Long-term disability insurance

Long-term disability insurance, on the other hand, can pay a portion of your income — typically about 50-80% — if you meet the policy’s definition of disability and are unable to work for a longer period of time. The length of time covered will be specified in the policy. Common lengths of coverage are two years, five years, ten years or until retirement age. The length of time the benefit can be paid will depend on the policy you purchase.

Additionally, long-term disability insurance can often be purchased through your work benefits (at an added cost) or individually through an insurer you choose. Coverage usually falls into two separate categories:

Own occupation disability income insurance:

An own-occupation disability insurance policy covers individuals who become disabled and are unable to perform the majority of the duties required for their job. The policyholder will receive benefits if he or she is unable to work in their “own” occupation regardless of whether they can find work in another occupation. Due to the lack of stipulations, own occupation is typically the recommended choice. Just make sure it’s clearly outlined in the contract that “own occupation” is limited to the actual work being performed on the job when the disability arose.

Any occupation disability income insurance:

Any occupation disability income insurance, on the other hand, will release benefits to the policyholder only if they are unable to perform any type of job. In many cases, the definition of “any occupation” includes the phrase “gainful” under which the insurer must determine whether or not a claimant can be gainfully employed, in light of the person’s training, education and experience. What does that mean in plain language? You cannot be capable of being employed anywhere. Therefore, typically, with this type of coverage, it’s more difficult to prove you are not employable. Situations that are nearly indisputable might include a severely debilitating illness or injury.

How much does disability insurance cost?

The premiums for disability insurance depend on many factors, including your age, income, occupation, potential risk factors for illness or injury, and the benefits included in each policy. As with any insurance policy you’re considering, compare quotes, research plans, and decide what coverage suits your family.

Cost of short-term disability coverage

It’s also important to know what you already have. Short-term disability insurance is a common benefit provided by employers at no or little cost to eligible employees. A few states have passed mandates or created programs for short-term disability insurance, so be sure to find out about what may be available in your state.

If you’re part of the gig economy, short-term disability can get pricey depending on which insurer you go with. Depending on your age, it can be anywhere from around $30 to $150 a month.

Cost of long-term disability coverage

Long-term disability insurance may be offered by an employer at an added cost. But, like employer-provided life insurance, it may not provide enough benefits to support your household needs if catastrophic illness or injury were to occur.

As a rule of thumb, long-term disability insurance will often cost between 1 to 3% of your annual salary depending on your age, gender, health, occupation and more. For many people, that means paying around $25 to $500 per month, according to Policygenius, depending on how much of a salary you want to replace.

Determining if you need disability income insurance

Some questions to ask yourself to determine whether you need disability insurance.

What would happen to my family financially if I were unable to work?

The benefit from a disability insurance policy can help support your household (and you) if you are too sick or injured to work for an extended time. Even if your partner earns the majority of your household income, when you have your own disability insurance policy you lower the stress associated with “what if” scenarios that we all imagine.

What would happen to me if I were unable to work?

If both you and your partner work, then you may both want to consider disability insurance policies. To qualify for disability insurance, you need to generate an earned income, with tax returns to prove it. For that reason, stay at home parents, or other people who don’t have earned income, typically are not eligible to apply. But if you are eligible, a smart financial plan includes protecting yourself and your ability to earn an income. If you can’t pay the bills, who will?

Do I have adequate coverage from my employer?

Read the fine print on what your employer offers.

Many employers offer group short-term disability insurance as part of your benefits package. It may be free or offered at an affordable premium. It’s a great work perk. But in addition, you may also want to consider long-term disability insurance.

Long-term disability insurance may or may not be offered by your employer. If not, it can be added as a supplemental benefit. While it’s convenient to simply purchase through work, going this route for coverage can leave you inadequately insured. (The same can happen with group life insurance through work.) Additionally, group long-term disability insurance often starts as “own occupation disability insurance” and then, in about two years, might convert to “any occupation disability insurance.” The latter provides less protection, which can leave you and your loved ones at risk financially.

Is individual disability insurance worth it?

The answer to this question is unique to each person or family.

It’s important to factor in just how much an illness or injury could cost you, in terms of immediate lost wages as well as future career trajectory and opportunities. Taken together, a mid-career disability could translate not just into a few missed paychecks, but a significant amount of lost income.

The knowledge that your policy could help you continue to pay the bills even while you are recovering from illness or injury can be a huge mental weight off a family’s shoulders.

While there are indisputable benefits of both long-term and short-term disability policies, at the end of the day, a lot of factors, including monthly cash flow, additional expenses, and current coverage, all come into play when you figure out the right choice for your family. And, for people who have left the corporate world in favor of pursuing their own path, it’s important to be aware that options exist outside of those typically provided by employers.

Speaking with a financial professional who is familiar with your family’s finances can make sense in determining whether purchasing a short-term disability policy, long-term disability policy, or both, makes financial sense.

Talking through what-ifs and planning accordingly can be incredibly comforting. After all, protecting your income can be one way to help your loved ones find order and stability in the chaos and upheaval that occurs during accident, illness or injury.

Jessica Sillers is a writer who specializes in financial services, business, and parenting. She lives near Washington, D.C. with her family.

Anna Davies is an editor at Haven Life. She has written for The New York Times, New York Magazine, Refinery29, Glamour, Elle, and others, and has published 13 young adult novels. She lives in Jersey City, NJ, with her family and loves traveling, running, and trying to find the best cold brew coffee in town.

Opinions expressed by the author are their own, and do not necessarily represent the views of Haven Life.