Author Topic: How much for disability insurance!  (Read 7311 times)

MichelleD1977

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How much for disability insurance!
« on: October 17, 2013, 04:03:27 PM »
I am a recent graduate of physical therapy school and am looking into purchasing some disability insurance. I was recently quoted $60/month by Northwest mutual for disability that would cover me for 5 years at my current take home pay were I to be disabled.  I also was quoted the same plan for about $150 or so for disability until I am 65.  Apparently its my doctors, not theirs, who determine the disability and I trust if I were truly disabled I'd be able to make the claim. I'm struggling with how much to invest in this.  On the one hand, I am at this point the main income earner for my family, we are in debt due to my education, and being a PT is a physically demanding job which may require a larger safety net than if you sit in front of a computer all day. On the other hand, $150 is a lot to pay a month for something I feel I will probably not use. I read on this blog in an earlier post that disability insurance is usually 1-2% of take home pay, which would be between $40-80 a month so the $60/month could fit that. any thoughts?

grmagne

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Re: How much for disability insurance!
« Reply #1 on: October 17, 2013, 04:49:11 PM »
If it will only require a year or two to pay off your debts and you plan to attain FI in your 30s/40s then go with the cheaper $60/month plan.  In that case saving an extra $1,080 annually (plus interest savings on your debt) will help you achieve your goals quickly and you won’t need the coverage to 65.

If you can pay off your debts in a year or two and you plan to work into your 60s then you might still consider the $60/month plan because you’d pay off your debts more quickly and have time to amass a large savings buffer before your 5-year DI policy reaches the maturity date. Then you can self-insure with your own savings/investments.  However, the $150/month plan is still an option if you’re not confident that you can build a big stash of money so quickly.

If it will take many years to pay off the debt and you plan to work into your 60s then locking into a long-term $150/month disability plan will give you a safety net and you’ll make more than enough during your career that you won’t need to worry about the extra cost.

brewer12345

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Re: How much for disability insurance!
« Reply #2 on: October 17, 2013, 06:42:35 PM »
NWM is the top shelf provider to buy this type of policy from both on policy terms and the financial strength of the company.  Is this a participating policy that might pay dividends?  If so, I would deduct the dividends from the premiums to arrive at a net cost.


This is something I personally would not skimp on.  However, there is no harm in shopping around.  Get some more quotes and see what they are like.

seattlecyclone

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Re: How much for disability insurance!
« Reply #3 on: October 17, 2013, 07:22:21 PM »
I agree $150/month sounds a bit on the high side. Before you buy a policy I would recommend looking up your info on the Social Security website to see how much they would pay out if you became disabled. For me it's something like 25% of my salary. That might not sound like much, but since I'm Mustachian and live below my means, that amount would actually pay for the majority of my typical spending.

Consider what fraction of your income you would need to pay for your current spending (plus maybe a bit more for medical care you might require related to a disability). Chances are you won't need to buy insurance for full income replacement, especially after you take Social Security (and perhaps some amount of student loan forgiveness) into account. Find out what you actually would need and ask for a price quote on that.

StarryC

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Re: How much for disability insurance!
« Reply #4 on: October 17, 2013, 07:54:38 PM »
Here are some assumptions: If you became disabled, hopefully you wouldn't be so disabled that you couldn't care for school age children for a few hours a day.  If you became disabled, your partner would work hard to increase his or her income to provide for the family.  If you become disabled, in most circumstances you would be able to find some type of work after a period of adjustment and retraining.  You would have some social security disability, let's assume $900 a month, less than the average now. 

I think 5 years is enough.  That gives whatever kids you have time to get old enough to go to school.  It gives your spouse 5 years to get ready to earn more.  It gives you 5 years to stabilize and retrain.  It gives you 5 years to adjust spending/housing etc. in order to plan to live on your disability check if necessary, and to apply for and get approved for SSDI.  If there might be some other insurance/ liability for your new disability, it gives you time to get that claim made and settled.  (Workers comp?  Car insurance? Some other liability?)

Of course, it is possible you will become so disabled that you could never work in any way and could not care for the children for a few hours between school and your partner coming home and there is no other recovery available.  But the odds of that are pretty small, compared to the more likely situation where you can't be a physical therapist, but you could be a file clerk or receptionist or some less physical or less mental job. 

Argyle

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Re: How much for disability insurance!
« Reply #5 on: October 18, 2013, 12:45:59 AM »
Be sure the policy specifies that they pay out if you are unable to continue in your own occupation (an "own-occ" policy).  Some say that they will not pay out unless you cannot work at any occupation, like answering phones or working in a fast-food joint.  The own-occ policies will cost more, but they provide what most people really want when they buy disability insurance.

Some time ago -- when I worked for a disability insurance company -- the statistics were that one in three people would become disabled for a time, for an average of six months.  Over the years I've seen this happen to a point where I believe it.  People break their arms, have bike accidents, get frozen shoulders, develop inner-ear problems, come down with various long-term illnesses ... you name it.  Of course it's the really long-term conditions that are the most threatening.

MichelleD1977

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Re: How much for disability insurance!
« Reply #6 on: October 18, 2013, 08:30:14 PM »
Thanks folks. It is indeed an "own-occ" plan and I agree that the 5 year plan would give me and my family time to figure out plan B if I were no longer able to be a physical therapist. I am more thinking about shorter term disability where I might need to recover for 6 months but could return to the job.  I do not envision a permanent disability. I'm sure nobody does! If you folks support the disability insurance idea than it makes me feel more confident. Now I just have to convince my husband, who was complaining about how much it costs but then spends $200/month on beer. I pointed out if we just drink 1/3 less beer this would cost nothing. He had pretty much no reply (ha I won that one!)

brewer12345

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Re: How much for disability insurance!
« Reply #7 on: October 19, 2013, 08:08:34 AM »
Thanks folks. It is indeed an "own-occ" plan and I agree that the 5 year plan would give me and my family time to figure out plan B if I were no longer able to be a physical therapist. I am more thinking about shorter term disability where I might need to recover for 6 months but could return to the job.  I do not envision a permanent disability. I'm sure nobody does! If you folks support the disability insurance idea than it makes me feel more confident. Now I just have to convince my husband, who was complaining about how much it costs but then spends $200/month on beer. I pointed out if we just drink 1/3 less beer this would cost nothing. He had pretty much no reply (ha I won that one!)

Start homebrewing and he can have at least as much beer for half the cost.

oldtoyota

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Re: How much for disability insurance!
« Reply #8 on: October 19, 2013, 11:41:11 AM »
I am a recent graduate of physical therapy school and am looking into purchasing some disability insurance. I was recently quoted $60/month by Northwest mutual for disability that would cover me for 5 years at my current take home pay were I to be disabled.  I also was quoted the same plan for about $150 or so for disability until I am 65.  Apparently its my doctors, not theirs, who determine the disability and I trust if I were truly disabled I'd be able to make the claim. I'm struggling with how much to invest in this.  On the one hand, I am at this point the main income earner for my family, we are in debt due to my education, and being a PT is a physically demanding job which may require a larger safety net than if you sit in front of a computer all day. On the other hand, $150 is a lot to pay a month for something I feel I will probably not use. I read on this blog in an earlier post that disability insurance is usually 1-2% of take home pay, which would be between $40-80 a month so the $60/month could fit that. any thoughts?

If you decide to get it, make sure it includes "own occ." In other words, make sure it will cover you for what you personally do for a living as opposed to saying you are fit to work at McDonald's and therefore not deserving of money if you are injured.


oldtoyota

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Re: How much for disability insurance!
« Reply #9 on: October 19, 2013, 11:43:37 AM »
I agree $150/month sounds a bit on the high side. Before you buy a policy I would recommend looking up your info on the Social Security website to see how much they would pay out if you became disabled. For me it's something like 25% of my salary. That might not sound like much, but since I'm Mustachian and live below my means, that amount would actually pay for the majority of my typical spending.

This reminds me. Examine what the tax implications will be.

IIRC, you are *not* taxed on payouts if you pay for DI yourself. You *are* taxed if an employer pays for it. Please double check what I am saying just in case. If you are expecting a certain sum and the tax man takes a large portion of it, it sounds like that would not be good for you as a sole provider.




StarryC

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Re: How much for disability insurance!
« Reply #10 on: October 19, 2013, 01:25:22 PM »
I am more thinking about shorter term disability where I might need to recover for 6 months but could return to the job. 

My Long term disability policy has a "waiting period" of 12 weeks/ 3 months.  Maybe that is weird, but I'd be sure to check what the waiting period was on the policy you are considering.  I know there are "short term" disability policies that cover a shorter term without as long of a wait.  I think those are substantially more expensive because the odds of needing them are much higher.

If you really feel that you only need 6 months, I think the better plan instead of insurance would be to save a 6 months living expenses emergency fund.  You could rely on that if you are unemployed for any reason, including disability.  Also, you wouldn't have to wait, apply, or prove anything- you could just use the money on day one.  And, instead of paying for it, you could earn some interest on it. 

Will

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Re: How much for disability insurance!
« Reply #11 on: December 02, 2013, 12:42:48 PM »
Before you buy a policy I would recommend looking up your info on the Social Security website to see how much they would pay out if you became disabled.

Thank you for this!  I was thinking I should look into getting disability insurance as I don't have any coverage from work.  I signed up on the SSA site and saw a nice big number that I am already qualified for (but hopefully will never have to use!).

dragoncar

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Re: How much for disability insurance!
« Reply #12 on: December 03, 2013, 03:49:15 PM »
Bump for me.  Does anyone have any statics on likelihood of long term disability?  The premium they are offering works out to something like 0.02% chance of long term disability next year.  If my chances are higher than that, it makes sense to get this insurance.  It looks ridiculously cheap.

Edit:  I also found this:  https://forum.mrmoneymustache.com/ask-a-mustachian/expanded-long-term-disability-insurance-or-scam/msg79740/#msg79740

My biggest hesitation is basically that I have a desk job.  The only thing that would prevent me from doing my job for over 6 months is "please let me die" territory
« Last Edit: December 03, 2013, 03:53:39 PM by dragoncar »

Daleth

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Re: How much for disability insurance!
« Reply #13 on: December 03, 2013, 04:03:34 PM »
I agree $150/month sounds a bit on the high side. Before you buy a policy I would recommend looking up your info on the Social Security website to see how much they would pay out if you became disabled. For me it's something like 25% of my salary. That might not sound like much, but since I'm Mustachian and live below my means, that amount would actually pay for the majority of my typical spending.

Remember, though, that if you become disabled your typical spending will change, and not for the better.

You will have a lot more copays/coinsurance/etc. for health care, since you'll probably have to go to the doctor and/or nurse and/or physical therapy appointments much more often (random example: if you're ever in a wheelchair, you will almost certainly develop the occasional bedsore and require some nursing visits and some skin-care doctor visits).

You will probably need some medical equipment, you may need some home renovations and/or some replacement items (e.g. if you can't use normal silverware, you'll need special silverware--which isn't cheap).

You may need a service animal--just getting one is a big expense, and then you have to feed it and give it good veterinary care.

You may need to drive or take the cab to places you currently walk. And/or you may need to retrofit your car, or replace it with one that's already retrofitted, to enable you to drive it--or even to ride in it (some disabilities can prevent you from sitting in a normal passenger seat).

You may need to hire someone to do tasks or errands that you currently handle yourself. And so on and so forth.

Disability insurance seems like a good thing not to skimp on. Social Security Disability Insurance is pretty bare-bones, and of course nowhere near salary-replacement levels.
« Last Edit: December 03, 2013, 04:08:48 PM by Daleth »

dragoncar

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Re: How much for disability insurance!
« Reply #14 on: November 13, 2014, 11:11:11 AM »
Guys... seriously nobody knows approximate annual odds of becoming long-term disabled?  My back of the envelope calculation goes like this:

Assumptions:
1 in 4 will become disabled before they retire
34.6 months is the average long-term disability claim
100k salary, disability pays half

Thus, the expected value of LTD is $36k.  Over a 45-year career, you should be willing to pay $66/month for this coverage.

Thoughts?

edit: found this site http://www.whatsmypdq.org/ suggesting my personal odds of becoming LTD are 17%.  I know that the insurance company plans to make money on this in the long run, but my employer heavily subsidizes the insurance.
« Last Edit: November 13, 2014, 11:24:16 AM by dragoncar »