Disability coverage could save you from financial hardship

Disability insurance replaces a portion of your monthly income if you suffer a qualifying injury or illness that impacts your ability to work and earn a paycheck.

Things like a broken hand, pregnancy, depression, and cancer can all be covered by disability insurance.

Disability insurance can be an incredibly useful financial safety net when you take a look at some of the statistics. For example, you're 3.5 times more likely to claim on a disability insurance policy compared to a life insurance policy. One in four Americans will face a career-altering disability.

Moreover, 70% of Americans indicated they couldn't make it a month without a paycheck before experiencing financial hardship.

Despite both the very real possibility that you could face a disability and the very limited amount of savings most consumers have in case something does go wrong, just 14% of Americans own disability insurance, while over half own life insurance.

If I've piqued your interest, here's what else you need to know about disability insurance.

The Cost

Generally, short or long term disability insurance will cost between 1% and 4% of your annual income in annual premium.

My employer, Breeze, is an online insurance broker for critical illness and disability insurance, and we recently analyzed all of the long term disability insurance quotes that went through our platform in 2020 and 2021 to find an average disability insurance cost.

In 2021, the average annual quoted cost for long term disability insurance was $1,297, or $108.11 monthly.

When looking at just quotes originating in the state of Tennessee, the average annual quoted long term disability insurance cost was $1,071 or $89.25, which is comfortably below the national average.

For reference, the quoted annual cost in 2020 was $841 ($70.08 monthly) for Tennessee.

In terms of what will impact the cost of your disability insurance policy, personal factors including age, health history, occupation, and income will have their say. For example, an oil rigger who smokes will likely pay a higher rate than a young, healthy financial advisor.

Policy details will also have an impact on the price of disability insurance. Selecting a longer benefit period, shorter waiting period, and higher monthly benefit will make the price go up.

The Policy Details

Let's talk about what disability insurance policy details will look like.

Short term disability insurance will usually replace between 40% and 60% of your monthly income, while that range is often between 60% and 80% for long term disability insurance.

The benefit period options for short term are usually between 3 and 6 months, but can be one or two years. On the other hand, long term disability insurance benefit period options can be up to 20 years or until the ages of 65 or 67.

Finally, short term disability insurance often has a waiting period of less than 14 days, while long term's waiting period can range from 30 to 365 days, but usually hovers around 90 days.

Things to Consider

If you think disability insurance is not necessary due to worker's compensation, remember that your injury or illness has to be work-related to qualify for that coverage. Disability insurance covers work and non-work related injuries or illnesses that qualify for coverage.

And, short term disability insurance is often the better option than long term disability insurance if you're looking for coverage due to pregnancy and maternity leave. With this though, you need to get coverage before you become pregnant, otherwise it will be marked as a pre-existing condition and likely not trigger benefits.

Deciding if disability insurance is right for you is going to come down to your specific personal and financial situation.

Mike Brown is the Director of Communications at Breeze, an insurtech simplifying how disability and critical illness insurance are bought.

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Mike Brown

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