If sickness or injury prevents you from returning to work for six months or more, would you have enough savings to take care of yourself and your family? For most people, the answer is no. Yet serious disability is not that uncommon: a quarter of today’s twenty-year-olds will face disability between now and retirement. That’s why disability insurance exists. This type of insurance usually replaces 60–80 percent of your income, for the period specified in your insurance contract.
Disability insurance is different from worker’s compensation, which employers must provide, in some form, in all fifty states to reimburse employees injured on the job. Instead, disability insurance is something many employers provide as a benefit, or at a deep discount. If your employer offers it, you should consider taking advantage of it.
Long-term and short-term disability insurance
Long-term disability (LTD) policies vary in duration, but some will pay benefits until you reach retirement age. The most common LTD claims involve things like back and neck injuries, but they also cover disabilities caused by things like cancer and mental illness.
LTD benefits usually kick in after any short-term disability (STD) insurance you might have runs out—usually within three to six months.
While many employers provide STD insurance, it’s not widely available to individuals. You can protect against some types of short-term disability by buying an individual “accident” policy that pays you a fixed amount each month for a year.
Long-term care insurance
Not to be confused with long-term disability insurance, long-term care insurance (LTCI) is designed to pay for care not covered by medical insurance, Medicare, or Medicaid—such as long-term nursing care.
LTCI tends to be rather expensive, especially when people sign up for it when they’re older and closer to needing it. To provide better options to consumers, some insurers are starting to sell hybrid plans that combine LTCI and life insurance. Customers pay in, and if they never use the LTCI, the benefit is returned to their beneficiaries as life insurance.