Hardly anyone has enough disability insurance when the reality of a pandemic makes it more important than ever

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  • One in four Americans will become temporarily disabled before retirement.
  • Disability insurance protects your paycheck and income if you become ill or injured and unable to work.
  • Some employers offer short-term disability. Five states require employers to offer short-term disability.
  • If your employer doesn't offer disability coverage — and even if it does — you should consider individual long-term disability to protect your income.
  • Policygenius can help you compare disability insurance policies to find the right coverage for you, at the right price »

Until coronavirus, no one considered disability a possible side effect of a virus or cold. But for those who survive COVID-19, there is the possibility of complications that may temporarily or permanently cause disability. 

The virus has been so debilitating that the military banned coronavirus survivors from joining. The New York Times reported that coronavirus survivors are struggling to recover from residual symptoms, like respiratory and neurological side effects, that may persist for months or possibly longer. 

Even before the coronavirus pandemic,"more than one in four of today's 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they retire," according to Guardian Life, which notes that illness causes 90% of disabilities and injuries accounts for the other 10%.

As we navigate life with coronavirus, disability insurance becomes important to protect our income and provides a level of comfort when illness or injury occurs.

What is disability insurance?

Disability insurance is like insurance for your paycheck if you are unable to work. Just like you have homeowners insurance for your home and car insurance for your car, you should have disability insurance to protect your income.

When you are injured or ill and unable to work, disability insurance provides you with a percentage of your salary. There are two types: short-term disability and long-term disability, which operate much like they sound — short-term disability covers a much shorter period of time than long-term.

Although many people probably have short-term disability through their employer (you'll want to check with your employer's HR or benefits team if you're unsure), long-term disability insurance is the one that most people need and do not have.

Short-term vs long-term disability insurance

You've probably heard of short-term disability (STD) through your employer. Short-term disability insurance covers lost income for about three months due to illness, injury, or pregnancy and recovery from childbirth. California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico require employers to offer a form of short-term disability.

The other type of disability insurance is long-term disability (LTD). Long-term disability insurance pays a portion of your lost income from a period of one year to the rest of your life, depending on your policy. Individual long-term disability insurance has two types of policies that determine your coverage: any-occupation and own-occupation (more on that below). 

Short-term disability Long-term disability
Lasts for 13 to 26 weeks Plans vary, typically 5 years to retirement age
Replaces 40% to 70% of base income Replaces 40% to 60% of base income
Short waiting period ("elimination period") before receiving benefits For most carriers, 90 days is the most common waiting period, but they can be 30, 60, or 90 days, or even 6 months or a year.

Data from Guardian Life Insurance

Who needs disability insurance?

To figure out whether you need disability insurance, the question to consider is: If you become ill or injured, how will you earn income to pay your bills?

There are disability insurance policies offered specifically for certain professions like doctors, lawyers, teachers, and construction workers. But also, disability insurance is available to self-employed and freelance workers. Your occupation, salary, and health status are some of the determining factors that go into calculating your premium costs. Therefore, costs will vary. 

Most employers provide some type of short-term disability insurance coverage, but it may not be enough.  Depending on your employer's short-term disability policy, it should cover about 40% to 70% of your salary if you are disabled due to illness or injury. If you are only receiving 40% of your salary, that might not be enough to cover your monthly expenses if you are disabled.

Plus, even the maximum coverage of 26 weeks might not be long enough for you to recover, and employer-provided disability insurance doesn't cover you if you leave your job. Therefore, it might be worth considering supplemental disability insurance. 

If your employer doesn't offer disability insurance — and even if it does — you should consider purchasing individual disability insurance, which belongs to you personally and you can bring with you if you leave a job.

Any occupation vs own-occupation disability insurance

There are two types of individual long-term disability policies: any-occupation and own-occupation. It is important to understand the difference between the two, certified financial planner Martin A. Scott wrote in an article for Business Insider, because it will determine whether you have coverage if you become disabled.

He wrote:

Any-occupation policies cover a policyholder who is unable to work in employment that is in line with the person's education and experience.  

Own-occupation policies provide coverage when an individual cannot fulfill responsibilities of their specific occupation, even if they still have the ability to work in another occupation. 

Scott noted that own-occupation policies better protect income, but they're also more expensive.

Scott used the following example of Barbara, a surgeon, who is in a car accident that hurts her hand. She can no longer work as a surgeon, but she could still work as another kind of doctor. If Barbara had an "any-occupation" policy, she would not receive disability benefits after her accident because "despite her injury, she has the ability to find employment in the medical field," Scott wrote.

However, if Barbara had an "own-occupation" policy, she would be "entitled to receive disability insurance benefits until her hand fully heals and she can return to working in surgery," Scott wrote. He noted that an own-occupation policy is extremely flexible; benefits would continue even if Barbara decided to work in a completely different field for a while.

The cost of disability insurance

The cost of disability insurance depends on several factors, like your benefit amount, benefit period, occupation, health status, age and terms of the policy (whether it's any-occupation vs. own-occupation).

The general rule is that the cost of an individual long-term disability policy is 1% to 3% of your annual salary, according to life insurance nonprofit organization Life Happens. Therefore, costs will vary widely from person to person.

But to give you some idea, we found the following estimates based on a hypothetical 35-year-old teacher living in Michigan making $50,000 a year, with a 90-day waiting period.

Company Monthly disability benefit  Monthly disability insurance premium
Guardian Life $3,000 $106
Mutual of Omaha $3,000 $36.15
Breeze $2,980 $66

How to choose a disability insurance policy

Most people have short-term disability through their employer. If your employer doesn't offer short-term disability, you can purchase individual short-term insurance.

But for most people considering disability insurance, the focus is on long-term disability and how to decide between an "any-occupation" policy versus an "own-occupation" policy. Although own-occupation is more expensive, it offers better protection for your income, as we saw in our example of Barbara. 

When you are thinking about coverage, keep in mind your salary, bonuses, tips, commissions, and self-employment income. The next consideration is your monthly bills. How much are you earning, and how much does it cost you to live every month? This will help you figure out how much you will need per month if you are disabled.

Some insurance providers have online calculators or quote estimates, but most generally require a follow-up with an agent to provide actual premium costs.

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