PLANNING AND INSURING FOR DISABILITY
A 45 year-old man calls me. He has always been healthy, a hard worker, providing for his family. He pays his mortgage and takes care of his family. But now he has suddenly become disabled. There is quiet panic in his voice as he asks the dreaded questions: What are the chances of getting Social Security benefits? (70% get denied at first). How long will it take? (A minimum of 4 months, maybe 18 months, or longer). How will I survive that long with no income? (It's really too late for planning). Are there any other government programs that can help in the meantime? (Probably not).
Americans plan for almost everything but rarely plan for disability. We insure against everything but often neglect to insure against disability. We insure our health, our home, our car, our boat, our life....but not our income. The result can be catastrophic when a medical condition or accident forces us to stop working.
Ideally, our population should plan for the possibility of a disabling condition that will pose severe financial hardship. There are basically two foundations to disability planning:
1. Savings.
2. Insurance
INSURANCE
A. Social Security insurance. Most Americans are covered by mandatory disability insurance at work. It's called Social Security disability insurance (SSDI)-- purchased by FICA withholding taxes. However, there are 3 problems with depending solely on Social Security disability benefits: the government's definition of disability is very strict; it takes a long time to get benefits started (months or sometimes years), and the benefit may not be large enough to meet your living expenses. Also, workers must have a minimum number of quarters of work to be covered by Social Security. Some of this work has to be recent. Finally, Social Security does not cover any disability unless it lasts at least 12 consecutive months OR is expected to result in death. There is no coverage for short term disabilities.
B. Employer's Group Disability Insurance. Many employers have group insurance plans that include disability insurance. These private plans may bridge the gap until Social Security payments can be started. Or they may pay benefits in addition to Social Security. But not all employers offer this coverage. Does yours? You should find out now. How much will it pay, for how long will it pay and under what terms will it pay? Will it cover short-term disability?
C. Personal Disability Insurance. Although it is fairly uncommon, individuals may purchase individual disability insurance policies from private insurance companies, much the same way that we purchase homeowners, auto owners or life insurance. This may be an option if you have no disability coverage at work. CAUTION: Buy from someone you trust and have a professional (such as your CPA or attorney) look over your policy. You don't want a policy, for example, that covers only accidents when you may need coverage for a herniated disc, cancer or other natural disease. Also, check to see what the policy says about nervous or mental disorders.
If you have not done so, I would encourage you to look into the types of disability resources you have available. What would happen if you became disabled tomorrow? Do you have savings or other resources allowing you to survive 6 to 24 months if it took that long to start Social Security benefits? Do you have any group disability insurance at work? Should you buy some form of private disability insurance to establish some safety net?
Unfortunately, most Americans don't think about a disability until it happens. Then, they are left with few, if any, options. Some advanced planning can make a lot of difference in how you would survive the financial catastrophe of a sudden disability.
Here is the most difficult question I ever have to answer:
Americans plan for almost everything but rarely plan for disability. We insure against everything but often neglect to insure against disability. We insure our health, our home, our car, our boat, our life....but not our income. The result can be catastrophic when a medical condition or accident forces us to stop working.
Ideally, our population should plan for the possibility of a disabling condition that will pose severe financial hardship. There are basically two foundations to disability planning:
1. Savings.
2. Insurance
INSURANCE
A. Social Security insurance. Most Americans are covered by mandatory disability insurance at work. It's called Social Security disability insurance (SSDI)-- purchased by FICA withholding taxes. However, there are 3 problems with depending solely on Social Security disability benefits: the government's definition of disability is very strict; it takes a long time to get benefits started (months or sometimes years), and the benefit may not be large enough to meet your living expenses. Also, workers must have a minimum number of quarters of work to be covered by Social Security. Some of this work has to be recent. Finally, Social Security does not cover any disability unless it lasts at least 12 consecutive months OR is expected to result in death. There is no coverage for short term disabilities.
B. Employer's Group Disability Insurance. Many employers have group insurance plans that include disability insurance. These private plans may bridge the gap until Social Security payments can be started. Or they may pay benefits in addition to Social Security. But not all employers offer this coverage. Does yours? You should find out now. How much will it pay, for how long will it pay and under what terms will it pay? Will it cover short-term disability?
C. Personal Disability Insurance. Although it is fairly uncommon, individuals may purchase individual disability insurance policies from private insurance companies, much the same way that we purchase homeowners, auto owners or life insurance. This may be an option if you have no disability coverage at work. CAUTION: Buy from someone you trust and have a professional (such as your CPA or attorney) look over your policy. You don't want a policy, for example, that covers only accidents when you may need coverage for a herniated disc, cancer or other natural disease. Also, check to see what the policy says about nervous or mental disorders.
If you have not done so, I would encourage you to look into the types of disability resources you have available. What would happen if you became disabled tomorrow? Do you have savings or other resources allowing you to survive 6 to 24 months if it took that long to start Social Security benefits? Do you have any group disability insurance at work? Should you buy some form of private disability insurance to establish some safety net?
Unfortunately, most Americans don't think about a disability until it happens. Then, they are left with few, if any, options. Some advanced planning can make a lot of difference in how you would survive the financial catastrophe of a sudden disability.
Here is the most difficult question I ever have to answer:
"How am I going to survive until I can get my disability benefits started?"
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