It’s common to believe that an event that causes a disability won’t happen to you or anyone else you know. Unfortunately, this is far from reality and why disability insurance is important. According to the U.S. Social Security Administration, there are currently 56 million Americans living with a disability, nearly a fifth of the total population. A full 10 percent of those are considered “severely disabled.” The SSA pointed out that disability doesn’t discriminate based on age either. The average 20-year-old has a 25 percent chance of becoming disabled before reaching retirement age.
“Social Security disability benefits cover only the bare minimum for many.”
Social Security does provide disability coverage for those who qualify, but the insurance is strict and meager. The SSA said that those who qualify for Social Security disability benefits are among the nation’s most severely disabled, and many die within five years of receiving them. The total annual benefit amount for disability recipients in 2015 was $13,980, only slightly above the poverty level of $11,670.
Therefore, while the chances of becoming disabled are quite high, the protection in place from Social Security hardly amounts to the bare minimum needed to support one’s self. Private insurance is available to pick up the slack left by Social Security, however.
Although many workers are aware of the availability of disability insurance, most choose not to participate in a plan. A study from LIMRA found that 72 percent of working Americans agreed disability insurance was important in general, while more than half said they themselves needed the coverage. Still, just 33 percent of study respondents said they owned disability insurance.
Disabilities and other medical problems continue to drain the finances of millions of Americans. According to a report from the American Journal of Medicine, around 62 percent of all bankruptcies in the U.S. were medically related in 2007. The vast majority of these debtors owed more than $5,000, which represented an average 10 percent of total household income.
“Most medical debtors were well educated, owned homes, and had middle-class occupations,” the report stated. “Three quarters had health insurance.”
These facts underscore the importance of a disability insurance plan. Disability insurance can be purchased as its own plan or as a supplement to an already existing life insurance plan. According to SmartAsset, it can come in two different forms.
One form of disability insurance will provide coverage if you are no longer able to work in your current occupation. This might be useful for someone who is employed in a physically demanding job. If they are injured off the job, it could end up costing them their income without worker’s compensation. This form of disability insurance could cover the costs of searching for a new job, or simply make up the difference of switching to a new, less physically demanding job that did not pay as much.
It’s absolutely vital to read the full agreement to any policy before signing up for disability insurance. Insurance policies are complicated and dense, so this might take some time to complete yourself. In this case, it can help to have a financial advisor assist with reading and understanding the insurance plan. A financial professional can also help pick the right plan that makes sense for your situation and your budget.
Suffering from a disability is always unfortunate, but it doesn’t have to ruin your finances or take all the joy out of life. With the right disability insurance plan, it’s possible to be protected against what is becoming more common and more disastrous for many American families.