Disability insurance can protect your income if you’re hurt or sick and can't work. While you might be fine now, most people are just a single accident or serious illness away from losing their income.
But there are some circumstances in which disability insurance is especially important, like if you have a very specialized job or make a lot of money. Here’s what you need to know about when to get disability insurance.
Who should get disability insurance?
While it’s rarely a bad idea to buy an individual long-term disability policy in addition to whatever group disability insurance you get through work, there are some people for whom disability insurance is essential.
1. People with dependents
If you have dependents who rely on your income, disability insurance protects them too, and means your family will be able to keep up the same lifestyle even if you can’t work. If you’re in a two-income household it’s smart for both you and your spouse or partner to have disability insurance.
2. People who can’t live on their savings
Think about how much you have saved and how long you could keep up with your expenses if you no longer had any money coming in. If you don’t have enough savings to pay your rent or mortgage and other necessary expenses without an income, you might want to consider disability insurance.
3. People with highly-specialized jobs
You should get disability insurance if you have a highly-specialized job — like doctor, dentist, or lawyer. Since your income is likely to grow substantially over your career, disability insurance is especially important. It’s also a way of protecting the years of expensive education and training that went into your career.
4. People with physically demanding jobs
You should consider disability insurance if you have a physically demanding job, like electrician or farmer, because an illness or injury could mean being unable to work. Bear in mind that if you have a dangerous job, your coverage may have restrictions.
5. People with high incomes
Think of disability insurance as income protection insurance — and the bigger your income, the more important it is to protect it. Usually, disability insurance costs about 1%-3% of your annual income, so if you make $300,000 a year, you might pay between $250 and $750 a month to protect it.
Who can skip disability insurance?
There are a few cases where buying disability insurance won’t necessarily be helpful or isn’t as important. Here’s who may not need their own disability insurance policy:
People whose pre-existing conditions would disqualify them from coverage
Any illness or injury you already have when you buy a disability insurance policy will be considered a pre-existing condition, and won’t be covered. Pre-existing conditions can also limit the coverage you can qualify for in the future, since they can lead to more disabilities later on. And there are certain conditions that may keep you from getting disability insurance altogether.
People who are close to retiring
If you’re in your 60s and are close to retiring, consider dropping your disability insurance and putting your premiums into your savings and retirement accounts instead — especially if you have a policy with graded premiums.
By this age, you’ll get a lot less out of disability benefits than someone with decades of earning years ahead of them (and you may have lower expenses at this point anyways).
People who can’t afford a policy
Simply put, if you can’t afford disability insurance, it’s not worth it. An individual long-term policy provides the most protection, but if the cost means it’s not within your budget then consider alternatives — opt in to any short-term disability coverage you can get through work, and read up on Social Security disability insurance (SSDI) in case you ever need to apply for government disability benefits.
People who can self-insure
This won’t apply to most people, but you don’t need to buy disability insurance if you can afford to stop working right now. Once you’ve got enough money not to worry about losing your income, you don’t need to continue paying disability insurance premiums.
Disability insurance riders to consider
Here are a few optional disability insurance riders you may want to think about adding to your policy:
Cost of living adjustment rider: Increases your disability benefits to keep up with inflation.
Future increase option: You won’t have to go through medical underwriting again to increase your disability coverage (up to a certain age).
Guaranteed renewable and non-cancelable: Guarantees that your rates won’t go up and your policy won’t be canceled as long as you keep paying your premiums.
Own-occupation rider: Allows you to receive benefits as long as your disability prevents you from doing your specific job, even if you can do another job.
Partial or residual disability rider: Pays you a partial benefit if your disability prevents you from doing some of your job, even if you can still work.
Student loan protection rider: Contributes money on top of your regular benefit towards your student loan balance.
How to get disability insurance
Consider getting a policy when you’re young and you can afford it even if you can’t imagine needing it — your rates will be cheaper while you’re younger and in good health. Follow these steps when it’s time to get coverage:
Frequently asked questions
When do you need to have disability insurance?
You need disability insurance in case you can’t work because of an injury or illness. A new policy won’t cover a disability you already have, so it’s important to get coverage while you’re healthy, before you actually need it.
Does anyone not need disability insurance?
You don’t need to have disability insurance if you can live completely off of your savings or other passive streams of income without working.
How do you know what kind of disability insurance you need?
Generally you want to have enough disability insurance to cover 60% of your income. You probably won’t need to pay taxes on your disability benefits, so this amount may cover a big share of your gross pay.
