Author Topic: Disability insurance: is it worth it before FI?  (Read 1808 times)

mustachianteacher

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Disability insurance: is it worth it before FI?
« on: March 26, 2014, 06:49:32 PM »
Hello everyone. Frequent reader, but infrequent poster/commenter here.

My husband (39) and I (36) are both public school teachers in CA, and we do not pay into Social Security or state disability, so we have our own disability insurance. It would cover us in the event that one of us in unable to work due to illness or accident for up to 12 months. At this point in our lives, we are definitely not FI, we still have a mortgage and some other debt, and we rely on both paychecks coming in reliably every month, so if one of us were out of work for several months or a year, we would definitely be screwed. Hence, the disability insurance. It would pay us about 40% of the disabled's income, which would be enough to make ends meet.

There's another option that's recently come to my attention, though, and I'd like some feedback on it: a cancer insurance rider. My first thought was, "Nah, that's just a moneymaker for the insurance company." It's not cheap, and while the payout is decent, obviously cancer is still statistically unlikely in the general population. The only thing that gave me a pause and prompted me to ask here are the following:

1. My husband's family tree is riddled with cancer. His father died of brain cancer at 63, and his brother died from genetically-based colon cancer at 41. Every single aunt and uncle on his dad's side and one cousin (that's 5 adults) has had at least one form of cancer; two people have had two. On his mom's side, they're healthier, but even my stepmom, an oncologist, said my husband's family history points toward a strong disposition toward cancer in general. He gets colonoscopies on a regular basis because of his brother, and so far, he's fine, but obviously, you never know what's coming down the road. My family has some cancer, but only about as much as you'd expect in the general population -- nothing unusual there.

2. Having witnessed the financial devastation his brother went through while he endured seven years of treatment, I feel like my eyes are wide open about the what-ifs. His brother was unable to work, had to declare bankruptcy, and we all pitched in for 5 years to keep him afloat and help out, but when he died, he had nothing left for his daughter to inherit; he was utterly penniless. We did what we had to do, but if he'd had a policy like this, it would have made a huge difference.

So, the nitty-gritty: If we get the policy, it would only be until we're FI, maybe 20 years maximum. It's $650 a year (I know, I know!!), but pays out $200/day for treatment (in-patient or out-patient), or $300/day while the person is in the hospital. (My brother-in-law spent weeks at a time in the hospital.) There are all kinds of other small amounts outlined, but those are the big ones. There is no lifetime maximum in dollar amount or in how long the policy will pay. Even if we were to put the $13,000 into savings ($650/year for 20 years), that would be wiped out VERY quickly in the event of cancer requiring surgery and chemo.

I won't keep blathering on, but if I have left critical details out, let me know. I'm really torn as to whether or not this would be a smart move for us. In case it matters, we have a 9-year old child, and we own our home. We will have pensions beginning in our late 50's, but we also have savings in 403b's and Roth IRA's. The Roth IRA's double as our life-or-death emergency savings (it's not our standard emergency fund; that's separate and only has about $10K), and we have about $100K combined there.