Author Topic: Is Disability Insurance a Good Idea?  (Read 1171 times)

archistache

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Is Disability Insurance a Good Idea?
« on: January 10, 2019, 11:41:50 AM »
I cancelled my long-term disability insurance because it was costing me $150/month, but someone else on here commented on my case study that I should keep it because my ability to FIRE is completely dependent on my ability to be working and earning an income. I think this is a good point. If I had a serious illness or injury that made me unable to work for the rest of my life, I would not be able to FIRE, ever.

I just discovered MMM and am in the earliest stages of the process: saving up an emergency cash cushion and paying off debt, so don't have any significant savings or investment built up yet.

I looked into less expensive plans through my main insurance company, State Farm, and the least expensive policies are still around $100/month, even with a 180 day elimination period.

So, is it a good idea to have a long-term disability insurance policy? Any thoughts much appreciated.

FIRE@50

  • Bristles
  • ***
  • Posts: 442
  • Age: 41
  • Location: Maryland
Re: Is Disability Insurance a Good Idea?
« Reply #1 on: January 10, 2019, 11:47:48 AM »
Doesn't social security cover this problem?

archistache

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Is Disability Insurance a Good Idea?
« Reply #2 on: January 10, 2019, 12:28:52 PM »
Doesn't social security cover this problem?
Good question. Looks like it does but not sure it would be enough to FIRE on...
From a quick Google search: ...the amount you receive each month will be based on your average lifetime earnings before your disability began. It is not based on how severe your disability is or how much income you have. Most SSDI recipients receive between $800 and $1,800 per month (the average for 2019 is $1,234).

Cranky

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: Is Disability Insurance a Good Idea?
« Reply #3 on: January 10, 2019, 12:39:18 PM »
If you have dependents, Iíd think about some short term disability coverage, but otherwise would focus on building emergency and retirement savings.

archistache

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Is Disability Insurance a Good Idea?
« Reply #4 on: January 10, 2019, 01:12:11 PM »
If you have dependents, Iíd think about some short term disability coverage, but otherwise would focus on building emergency and retirement savings.
I do have one dependent, but am less concerned about short term disability because if I was unable to work for a few months I'm pretty confident my parents would be able to help me with minimal living expenses for a few months. But not for years...

NV Teacher

  • Bristles
  • ***
  • Posts: 449
Re: Is Disability Insurance a Good Idea?
« Reply #5 on: January 10, 2019, 01:22:50 PM »
Doesn't social security cover this problem?
Good question. Looks like it does but not sure it would be enough to FIRE on...
From a quick Google search: ...the amount you receive each month will be based on your average lifetime earnings before your disability began. It is not based on how severe your disability is or how much income you have. Most SSDI recipients receive between $800 and $1,800 per month (the average for 2019 is $1,234).
I believe that getting on social security disability is very difficult and can take years to get.

bluebelle

  • Bristles
  • ***
  • Posts: 273
  • Location: Toronto
Re: Is Disability Insurance a Good Idea?
« Reply #6 on: January 10, 2019, 02:12:54 PM »
do you have life insurance?  I forget the numbers, but you are much more likely to be disabled for 90 days or more than you are of dying.   I can't even opt out of disability insurance where I work (which pissed me off because my private coverage was cheaper)

SwitchActiveDWG

  • Stubble
  • **
  • Posts: 137
Re: Is Disability Insurance a Good Idea?
« Reply #7 on: January 10, 2019, 02:24:08 PM »
Yes, long term disability is a good idea. And if you're unfamiliar with it, it's a good idea to thoroughly research things like benefit period, elimination period, contract types (renewable, non-cancelable..), and potential riders before buying a policy.

dogboyslim

  • Bristles
  • ***
  • Posts: 380
Re: Is Disability Insurance a Good Idea?
« Reply #8 on: January 10, 2019, 03:38:38 PM »
Yes it is.  SSI only covers you for a disability that prevents you from doing any work.  Many of the private policies provide for disability in your field (at least they used to).  So if do data/stats and business reporting and have a head injury that prevents me from being able to focus on those things, I get DI, even if I could still sweep floors or greet shoppers at the front of a store.  For SSI, I can't be able to do any job, or so it seems from the way they deny benefits.

Zikoris

  • Magnum Stache
  • ******
  • Posts: 3279
  • Age: 32
  • Location: Vancouver, BC
  • Vancouverstachian
Re: Is Disability Insurance a Good Idea?
« Reply #9 on: January 11, 2019, 07:08:09 PM »
Depends whether you could manage on just disability payments, or a part-time job if that was possible. I don't bother with it because in Canada the disability benefits average over $900/month, and I only spend $700-$800 now. If I wasn't totally disabled and could still work a bit, virtually any job would pay the $700-$800 I'd need to live. And at this point our SWR on our investments is $1,200/month, so I'd technically not have to work at all if I didn't want to. Oh, and my partner earns money as well, so there is that. So many layers of options.

snacky

  • Walrus Stache
  • *******
  • Posts: 8806
  • Location: Hoth
  • Forum Dignitary
Re: Is Disability Insurance a Good Idea?
« Reply #10 on: January 11, 2019, 07:13:10 PM »
Three years ago I suddenly got too sick to work, and have been on my (work-sponsored) long term disability ever since. I'm a single parent, and if I hadn't had the insurance I would have had to go on welfare to feed my kids. Instead we live comfortably and everything is ok.
Think about what would happen if you suddenly couldn't work any more, permanently. If everything would be fine, skip the insurance. If you would be screwed, get insurance.

SunnyDays

  • Bristles
  • ***
  • Posts: 276
Re: Is Disability Insurance a Good Idea?
« Reply #11 on: January 12, 2019, 03:02:51 PM »
Another point - depending on the disability, you might incur many costs that you currently don't have.  Things like adaptive equipment, therapies, house alterations etc.  So, depending on your age, occupation and risky activities, certainly give it a lot of thought.

Dr Kidstache

  • Stubble
  • **
  • Posts: 143
Re: Is Disability Insurance a Good Idea?
« Reply #12 on: January 13, 2019, 10:19:46 AM »
@snacky and @SunnyDays both hit the nail on the head. Yes, if you or your family is dependent on your working income then you need disability insurance. Period. Disability is WAY more common than people think, becoming disabled is very expensive in medical and associated costs, and the safety net in the US is not timely. I was a super healthy professional when a freak accident left me unable to do any type of work 3 years ago.

SSDI can take years for some people to be approved (and some never get approved). I was fortunate in that my application was approved the first go-round and the process only took about 6 months. There's a bit of money from it but not enough for me to live on without a drastic reduction in lifestyle. I think the main benefit of SSDI is that recipients qualify for Medicare after receiving 2 years of payments. Getting on Medicare has been a huge relief for me.

Having private disability insurance is what has allowed me to keep living independently, save money for my future, and be able to afford the best medical care I can find. I was fortunate to have 2 different LTD policies. One was an individual policy (what it sounds like you're shopping for), the other through my employer. The market for individual LTD insurance is totally different from other type of insurance so there's no utility in going through your usual insurance company State Farm like you mention. Individual LTD is sold through brokers. Important fact: Brokers sell policies but that have NOTHING to do with using the policies so their information about what makes a "good" policy must be considered with a degree of suspicion. Most of the LTD companies are a nightmare but some are better than others so it's important to learn about the companies before you go shopping because brokers only rep certain companies. Brokers will attempt to sell you riders like residual disability that sound good but actually make you less likely to get paid for claims so it's important to know what you're looking for in a policy. So you can save money by not being talked into those. Important policy conditions are things like own-occupation, gender neutral (if you're a woman), no "mental and nervous" exclusion (which are used to deny payments for almost any type of medical condition and not just what you or your doctor might think the term implies), how your pre-disabilty earnings are calculated, ability to increase amount of benefit in the future.

2 great resources to learn about LTD insurance and the various companies are:

whitecoatinvestor.com (I don't have any experience with the brokers on that site and the articles are written mostly by brokers so take with a grain of salt. But lots of useful baseline info and contact info for brokers)

lindanee.wordpress.com (Linda manages LTD claims and has been in the industry forever. She knows how all the different insurance companies operate and has good info about policy provisions, like residual disability riders. She doesn't have anything to do with selling policies.)

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4634
  • Age: 34
  • Location: Seattle, WA
Re: Is Disability Insurance a Good Idea?
« Reply #13 on: January 13, 2019, 10:45:47 AM »
I think disability insurance is even more important than life insurance. Think about it: would your family's expenses be higher if you were disabled, or if you were dead? Easy. Dead people don't consume food or housing or clothing or medical care or anything else for that matter. Disabled people do.

In the US the social security system can provide some funds in case of death or disability, and this should be taken into account when deciding how much insurance is appropriate for your family. As you get closer to financial independence the need for either type of insurance will decrease.

Imma

  • Handlebar Stache
  • *****
  • Posts: 1479
  • Location: Europe
Re: Is Disability Insurance a Good Idea?
« Reply #14 on: January 13, 2019, 01:31:14 PM »
Three years ago I suddenly got too sick to work, and have been on my (work-sponsored) long term disability ever since. I'm a single parent, and if I hadn't had the insurance I would have had to go on welfare to feed my kids. Instead we live comfortably and everything is ok.
Think about what would happen if you suddenly couldn't work any more, permanently. If everything would be fine, skip the insurance. If you would be screwed, get insurance.

I can work again now, but I wasn't able to work for quite a few years due to a serious illness. In my country, social security is relatively decent, but I know things are different in the US. Short term disability is something you can self-insure for by saving up money, but long term disability insurance is something you should always seriously consider having (except maybe if you're fatFIRE'd).

Not only will your income be much lower when you are disabled, please also don't underestimate how much your costs will go up. Even if you have good health insurance, which isn't a given in the US, there are still lots of extra expenses, from out-of-pocket medication, to certain dietary requirements that make food shopping more expensive, to having to hire help at home, travel costs to hospital, higher heating bills because you're always cold, you might need a whole new wardrobe because you gained or lost weight or because you're unable to close zippers or buttons now. All those little costs definitely add up to thousands per year.

jlcnuke

  • Pencil Stache
  • ****
  • Posts: 824
Re: Is Disability Insurance a Good Idea?
« Reply #15 on: January 13, 2019, 03:15:01 PM »
$150/month?? That's ridiculous unless you're making $500k+/year. Mine is Under $500/year and replaces 60% of my income, tax free, on a 6-figure salary...

Shop around.

Kott308

  • 5 O'Clock Shadow
  • *
  • Posts: 19
  • Age: 31
  • Location: NJ
Re: Is Disability Insurance a Good Idea?
« Reply #16 on: January 13, 2019, 03:33:14 PM »
Itís mentioned in the opening pages of The Thin Green Line that you are 4x more likely to be disabled in your lifetime then you are to die young II think long-term disability insurance is a must for anybody with or without FIRE plans. Hoping social security disability will catch you if you fall is an option, but may come with months of paperwork and doctors appointments before the green light is given. I also have acquired some income producing real estate that I can farm out the management if I become disabled. Obviously, thereís some different risks and factors involved there, but still serves as an income stream should  I become unable to get  myself to work before my FIRE date comes due.

Long-term disability insurance is a must for anybody thatís still punching a clock.

Jeblers

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Is Disability Insurance a Good Idea?
« Reply #17 on: January 13, 2019, 09:14:08 PM »
I was 27 when I was diagnosed with colo-rectal cancer. I was relatively healthy, did moderate exercise and ate decently enough. Colo-rectal cancer is not a young person's disease but sometimes you just have shit luck.

The past 5 years I have been in and out of the workforce collecting a pay check or short / long term disability payments. 24 months ago I tried going back to work full-time and to say I struggled would be an understatement. 18 months ago I dropped back to modified duty and I work 10 hours a week and long term disability covers the rest. My body has been through so much. My doctors and I are less optimistic as time goes on that I will ever get back to my old self, meaning I could be collecting long term disability until I am 65, if I make it that far.

If I never had disability insurance I would have totally been screwed. Either working all the time just for a paycheck which in turn I would be sick and miserable or scraping by on a reduced salary. I am a rare case, most in their early 30's people will never have to be in my situation. I am just happy I can still live an OK life, save for retirement and have some financial freedom because I had insurance. The stress of money when I am at my worse would have been the nail in the coffin. Also, I live in a country with socialized medicine so that has helped too.

CrustyBadger

  • Pencil Stache
  • ****
  • Posts: 671
Re: Is Disability Insurance a Good Idea?
« Reply #18 on: January 13, 2019, 09:32:57 PM »
For those in the US who have paid in to Social Security, you should know that SSDI (Social Security Disability Insurance) is a good thing.   But very hard to qualify for.   The average payment is $1200 per month and the absolute maximum is about $2800 a month.

My husband is disabled, and receives private disability insurance payments through his job (actually he worked for the US government, so it is FERS disability) and then finally qualified for SSDI as well.   The SSDI amount was then taken away from the FERS amount, so it's not like you can add the two together.  These payments are taxed.

If you do qualify for SSDI Payments and have minor children, you can get about half your payments again as a children's beneffit, until the last child turns 18 or graduates from high school.   This is also taxed but at the child's rate.

So, it is something, but not a ton of money.   And the cost of being disabled is high.  Not just the things you have to buy or spend money on (medical treatment, personal aides, etc) but the opportunity cost of not being able to do things frugally yourself.  To be frugal it helps to be flexible, but the more disabled you are, the less you can be flexible and the more you have to rely on others for assistance -- meaning you are dependent on their schedule.

I think disability insurance is a vital part of anyone's budget.

Malkynn

  • Bristles
  • ***
  • Posts: 297
Re: Is Disability Insurance a Good Idea?
« Reply #19 on: January 14, 2019, 06:34:55 AM »
$150/month?? That's ridiculous unless you're making $500k+/year. Mine is Under $500/year and replaces 60% of my income, tax free, on a 6-figure salary...

Shop around.

How old are you?
The premiums can sky rocket with age.
Also, it depends on if the policy is for general disability or for specific career disability.

I've seen policies here that provide only $2000/mo for specific career disability that cost over $100/mo for someone once they reach late 30s.

It all depends on the factors going into the policy.