Author Topic: Should I buy my own disability insurance policy?  (Read 866 times)

SavinMaven

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Should I buy my own disability insurance policy?
« on: October 10, 2021, 12:57:47 PM »
I have always had disability insurance through work. My job is secure as far as jobs go - I work for a large company and even if I needed to move states, it's likely I could continue to work for the same corporation as long as I choose to.

I'm in my 40s, as is my spouse, but he has a serious illness that conveys a significantly-shorter-than-average lifespan. I earn approximately 2/3 of the household income. We are about halfway to FIRE, give or take, based on when our two teens are able to become financially independent.

I got a few quotes on own occupation disability insurance, all in the $500-600/month range. We can afford it, but of course those dollars could also be invested. I've heard lately you should have your own private disability policy, in case the circumstances that leave you disabled first leave you unemployed. Does anyone have any insight into how that works? I mean obviously if you're fine one day and in a huge car wreck the next, your policy through your employer will cover you. But if you gradually become more ill, downshift to part-time, or what have you - is there a real risk that your employer's policy will not come through for you? Is the risk big enough to justify $600/mo on a private policy?

Metalcat

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Re: Should I buy my own disability insurance policy?
« Reply #1 on: October 10, 2021, 02:02:32 PM »
Ugh...well, like everything, it depends.

First, is that a policy for "own occupation" or total disability. If it's for total disability, then good fucking luck collecting. It's hard enough to collect on an "own occupation" policy even when it's blatantly obvious that you can't do your own occupation. Case in point: I frequently can't see properly out of my right eye and my right hand goes numb, and my job was performing micro-surgery. So, uh, yeah, problem.

They still rejected me citing a medical explanation that doesn't even make sense, and a year later we're still wading through the molasses swamps of a lawsuit that hasn't even made it to mediation yet, and I've been made to produce years of records in relation to personal shit, like my therapy sessions, that has nothing to do with my disability policy. In short, they've done everything they can to humiliate me, insult me, dehumanize me, and generally try to torture me.

Now, I don't mind, I actually enjoy a good fight, and am not easily intimidated by having someone violate my privacy, it was what it is, and I'm generally dispassionate about it. But my lawyer has been doing only these cases for 35 years, and the norm is not to be chill about it, the norm is to be a total wreck through the entire process, so it's good to know that in advance. It's a traumatizing experience by design.

If it is "own occupation", is your occupation specific enough that it's clear that there is no area of your profession that could be done with accomodation or retraining? It doesn't matter if your employer won't provide these things, it only matters if they are theoretically possible. So you have to be able to prove that you are disabled in a way that there is no version of your occupation that you could possibly do, even with support, even with everything converted to braille, or a $8000 Altwork desk, or an emotional support monkey, or whatever the hell need you might need that *could* be accommodated but that no employer reasonably would accomodate.

If there is any doubt, it will likely end up in rejection and a lawsuit. This is the norm, not the exception. What's reasonable doesn't actually matter until it might end up in court. They will reject you even with made up excuses, like in my case, which my doctors were shocked got rejected (and pissed off about being misrepresented) but my lawyer wasn't surprised at all. They want lawsuits, that way they can settle for less than the face value of the policy, and a lot of people can't afford lawyers, or their case isn't solid enough to be taken on contingency.

If it's total disability, well, good luck proving that. You have to prove that there is no job that you could ever possibly do with any degree of accomodation, which is basically impossible unless you have irreversible frontal lobe damage and can no longer control your own violent/dangerous behaviour, and you've lost your sight, and maybe also lost a limb or two.

Even then, they won't just pay out the policy, they'll probably periodically cut off your payments and require you to jump through hoops to prove that you are still brain damaged, blind, and missing a limb, and even then, it will still likely end up in a lawsuit.

Through all of the above, expect to be followed by a private investigator and feel like you have no privacy, it's a normal part of the process. It's designed to be invasive and threatening.

So you have to balance the cost against the likelihood of the policy ever paying out.

Seriously, have your policy reviewed by a disability lawyer before signing it. That's a huge expense, and you need to know what you are actually buying, because you are NOT buying guaranteed income replacement in the event of severe, provable disability.

Only then can you really balance what it's actually offering compared to the cost.

Now, let's talk about this expensive policy. How long were you expecting to work? Most policies pay out until you are 65, so if you were planning to retire early, you don't have to replace nearly as much income, because even a very small policy adds up when it's projected out until the age of 65.

Even a modest policy, which likely will end up being settled for anywhere from 50-75 cents on the dollar, can provide a solid lump sum and push you over the edge to FI, so you may be able to downgrade to a much less expensive policy if you look a little closer at the math and what you actually need.

Granted, if it's a total disability policy and you actually qualify for it...uh...yeah....you will be so fucked up, you will likely need extensive, ongoing care. So there's that aspect too.

Sorry to sound like a total downer, I'm actually not, I'm quite happy I purchased my modest policy, but you need to know who you are giving your *substantial* money to, and what you are actually buying with it.

The more informed you are going in, the more informed a decision you can make, and the better prepared you will be in the, hopefully unlikely, event that you ever need to actually pull the trigger on your policy.

Pro tip: call a lawyer at the beginning of your chronic illness, ideally before you talk to any doctor, not when it gets bad enough to considering making a claim. Also, if you start getting sick, get in the habit of asking for copies of your medical notes after every visit.

Sibley

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Re: Should I buy my own disability insurance policy?
« Reply #2 on: October 11, 2021, 09:31:23 AM »
What Malcat said.

But also, if you took that 500 or 600 a month and socked it into investments, what's that going to do to the full picture?

As for the half-grown kids, there's a variety of launching support that can be provided. You can be warm and loving and supportive of your young adult children without providing much, or any, money. You can be cold and heartless and abusive and spend a fuck ton of money. Aim for the first rather than the second.

Metalcat

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Re: Should I buy my own disability insurance policy?
« Reply #3 on: October 11, 2021, 10:25:27 AM »
What Malcat said.

But also, if you took that 500 or 600 a month and socked it into investments, what's that going to do to the full picture?

As for the half-grown kids, there's a variety of launching support that can be provided. You can be warm and loving and supportive of your young adult children without providing much, or any, money. You can be cold and heartless and abusive and spend a fuck ton of money. Aim for the first rather than the second.

It depends at what age you get disabled. I was disabled at 37, I wouldn't have much if all I had was the premiums I saved.

That's the trade off, and also why it's important to project out how many years of premiums you intend to pay. If someone is just a few years from FIRE, then even a very expensive policy could be worth it for just a few years, because if you do end up collecting, it pays until 65, not until your FIRE date.

So say you are 35 and have 5 more years until FIRE, and you get a policy for, say, ~$2500/yr that would pay out 48000/yr until 65.

If you get disabled at 36 and had no policy, you would have saved only $2500, but if you had the policy, assuming it ends up in court and you have a strong case, you could settle for 70c on the dollar, and get a settlement of 1M, tax free* for the total cost of $2500.

Where disability doesn't pay off is when you maintain the policy for decades, but someone who aims to hit FI early doesn't need to maintain a policy for that long, which dramatically lowers the overall cost.

So you have to compare the premiums just for the years that you need it, compared to the potential payout. The younger you are and the sooner your FI timeline, the better the math works out in favour of buying the policy.

*Here, workplace disability policies are taxable, but private policies that you pay for with after tax dollars are not taxable, I don't know if this is the same elsewhere

Roots&Wings

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Re: Should I buy my own disability insurance policy?
« Reply #4 on: October 11, 2021, 10:58:04 AM »
In US, you can't legally be fired if you're on FMLA disability leave and there weren't any job performance issues prior to your disability. In theory, you could be fine with your employer disability plan. and I wouldn't be inclined to pay that amount.

Have you checked with your employer's disability insurance provider what it would cost with them?

Coverage details are so important, e.g. what's the elimination period before the disability policy kicks in (could be anywhere from 10-90+ days). You either use PTO or don't get paid for the elimination period. Are you covered for 100% of your salary loss, or partial? How is disability earnings loss eligibility defined?

At my employer, I was able to supplement the employer provided disability insurance with PTO to not lose any income (our standard disability coverage is 70% of salary; in hindsight, I could have purchased add'l coverage for 100% of salary for like $10 per pay period).

It can be a nightmare to navigate. Even with the same disability insurance company, going from short term to long term disability can be completely different groups and you have to redocument everything with updated medical reports, detailed interviews, etc.

 

Wow, a phone plan for fifteen bucks!