Get Out of Debt Using Disciplined Personal Finance

When I took my first job out of law school, I couldn't have cared less about my law firm's short term and long term disability insurance benefit.  At twenty five, disability insurance seemed so worthless.  I mean, who at twenty five needs it right?

Well, two short years later I found out just how important it is.  Now, I always value this benefit. And, you should too.

How I Learned The Importance of Disability Insurance

When I was twenty seven, doctors found a mass in my brain that they were sure was a malignant brain tumor.  For several weeks, I thought that I was a goner.  Luckily, after having brain surgery, it turned out that I had a brain infection that was treatable with anti-fungal medication,.  But, prior to this better prognosis, short term disability insurance and long term disability insurance became VERY IMPORTANT to me.

While I was making great money at the law firm, I was facing a situation of being too sick to continue to work.  Worse yet, with brain cancer, I might have never been able to work again.  While facing such serious health issues, let me tell you the last thing I wanted to worry about was money.  Fortunately, my law firm offered 26 weeks of 100% pay short term disability insurance and 60% pay life time long term disability insurance.

Having this disability insurance in place allowed my family and me to focus on my health issues as opposed to money.   This event showed me just how important this insurance is.  To help you understand this insurance better, here is a short disability insurance guide that covers the high level basics that you need to understand.

Disability Insurance Guide

This introduction to disability insurance will discuss both long term and short term coverage along with the benefits and drawbacks of both.

One fact needs to be brought to the forefront in the beginning. Disability insurance is not designed to replace a person’s total income when an illness or injury prevents the person from creating an income. In most cases this is tax free income that is between 45% and 60% of a person’s pre-injury or illness salary.  However, with short term disability insurance many employers offer higher percentage plans or an ability to buy up.

The only purpose of disability insurance is to replace an income for any worker that becomes unable to earn an income due to an injury or illness not of their own making.

Short Term Disability Insurance

The short term disability is the insurance that covers the first 90 days or more of a working not being able to report to work. There is generally a 3 week delay in receiving these benefits. With most private insurance companies, this is at full to 60% of a person’s salary.

In my case, my law firm's short term disability insurance was self funded and they offered up to 26 weeks of insurance at 100% of my salary.  I was very lucky to have such good insurance.

Long Term Disability Insurance

Long term disability insurance is only for coverage after the expiration of the short term disability insurance term. With this type of insurance there are both private and federal policies. The federal policy is better known as Workers Compensation. This pays a portion of a worker’s salary and medical expenses along with some of the economic losses that may occur. Workers that are eligible for this type of insurance must have been injured on the job.

The private insurance coverage makes payments directly to the worker, but this is at a set rate that is rarely (if ever) more than 60% of that person’s previous salary. In most policies, if a person is collecting workers compensation, that amount they will receive could diminish the payments from the private insurance company. Each policy is different so the reading of the fine print is very important.

Since 3 out of 10 American workers are injured on the job or during their working life, disability insurance is very important. Just remember each policy is different and should be read in its entirety.

Have you ever needed to rely on disability insurance?  If so, I would love to hear your thoughts in the comments below.

For other great resources from this site please look at The Future of College Education.

{ 0 comments }