Do You Need Disability Insurance?
Published: September 18, 2015
It might surprise you to know that the odds of long-term disability actually decline with age. For example, a 40-year-old has a 43% chance of experiencing at least one disability lasting 90 days or more before reaching age 65. For a 50-year-old, the odds drop to 36% — still a higher risk than most people might expect.1
Of course, the average 50-year-old is not healthier or less accident-prone than the average 40-year-old. The difference reflects the fact that the 40-year-old has a longer period of risk before reaching age 65.
In fact, disabilities tend to occur later in life. In 2013 (most recent data available), 59% of new long-term disability claims were for people 50 and older.2 And when older people become disabled, it often takes more time for them to recover, or they might not return to work at all. A 55-year-old who experiences a 90-day disability has a 60% chance of it lasting for at least five years.3
Individual vs. Group Coverage
If you’re concerned about the potential effect of losing your income due to sickness or injury, you might consider an individual disability income insurance policy. Though your employer may offer long-term disability coverage, group plans typically don’t replace as large a percentage of income as an individual plan could, and disability benefits from employer-paid plans are taxable to the employee if the employer paid the premiums. Of course, if you change jobs, you might lose your subsidized employer-based coverage.
An individual disability income policy could help replace a percentage of your income, up to the policy limits, if you’re unable to work as a result of an illness or injury. Benefits may be paid for a specified number of years or until you reach retirement age. Some policies pay benefits if you cannot work in your current occupation; others might pay only if you cannot work in any type of job. If you pay the premiums yourself, disability benefits are usually free of income tax.
A loss of income not only could put immediate pressure on you and your family, but might also alter your options for retirement. An appropriate individual disability income policy may help you weather a difficult time and stay on track to pursue your long-term financial goals.