The importance of short term and long term disability insurance

Disability InsuranceThe husband of my wife’s best friend (and friend of mine) recently found out that he has been diagnosed with Hodgkin’s Lymphoma. As a manual skilled laborer and union member, his benefits are tied to his working, in that he must accumulate a certain amount of hours to be eligible for his health insurance and pension benefits. His union does not offer short-term or long-term disability, and although I’ve never discussed it with him – maybe he never knew this type of insurance existed. Many companies do not offer disability insurance either, you must go out and purchase it on your own. Even when companies do provide the insurance, the worker typically pays the premium. Below, I will outline what this insurance is and what it covers, and why it’s so very important to have it if you don’t. I also provide a list of companies where you can purchase it and what you can expect to pay for it.

It’s unfortunate to have to spotlight a friend of mine’s bad situation to highlight the critical importance of having this insurance to help maintain one’s ability to provide for their family when some unexpected illness occurs. My friend and his wife have two children, and they both were working and doing just fine. One day, my friend noticed a lump in his neck and decided to go and get it checked out. The results of the biopsy were shocking and life changing when he found out he had stage 2 Hodgkin’s disease. He would have to stop working immediately and undergo chemotherapy for the next 6 months, with radiation a looming possibility if the chemo doesn’t cure his cancer. He would be unable to care for the youngest child therefore requiring daycare expenses. His wife will continue to work to help support their monthly mortgage payments and other needs. However, because he will not meet his labor requirements, his insurance premiums will potentially increase significantly. Moreover, he no longer has an income to help meet the family bills. He’s in a flat-out horrible situation with no where to turn. Fortunately, we have a good community rallying around the family and my wife is sponsoring a charity event for the family. But that money will in now way come close to replacing his lost income and increase in bills related to medical care.

So what is short-term and long-term disability insurance and what does it cover? In a nutshell, short-term disability insurance generally pays between 1/2 and 2/3 of the individual’s pay due to a disability that prevents work and the coverage lasts from 3-6 months. There is typically a cap on the payment and policies vary widely. Long-term disability is the same except it usually pays out between 2-5 years, with some paying benefits through age 65 or longer. Think of this insurance as income protection  – when you can’t work, this will help you pay your bills.

How much does disability insurance cost?

According to UNUM, “the cost of coverage varies and is based on the type of policy, insurance carrier and other factors, but here are some examples:

Group insurance that is purchased by a business as an employee benefit averages $228 per employee per year for long-term disability and $192 per employee per year for short-term disability[3]. The employee usually pays nothing or a small amount for this coverage.

Rates for short-term disability products that are sold directly to employees at the workplace may benefit from group discounts. For example, a 35-year-old light blue collar worker could choose a policy that provides a $2,000 a month benefit for 12 months for a covered disability. The average monthly premium for this policy would be $58[4].

Here is an example of an individual policy that may be purchased through an independent insurance agent. A 40-year-old professional man who makes $50,000 a year would pay about $1,700 a year for a policy that would pay him $2,900 a month for up to five years for a covered disability.”

Where are some places you can get this disability insurance?

  • Hartford Life
  • Aflac
  • Lincoln Financial Group
  • Unum
  • Aetna
  • MetLife
  • Cigna
  • Reliance Standard
  • Standard
  • Prudential

I hope this article helps you consider getting the necessary insurance you need to help cover your family in the event of an unexpected illness or injury. Not to mention, short-term disability covers things like pregnancies! Take the time to look into this and see if it makes sense for you and or your family.

3. JHA 2005 U.S. Group Disability Market Survey, 2006.
4. Voluntary Short-Term Disability Plans Participant Summary, Eastbridge Consulting Group, 2005.

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  3. If you are a highly paid professional, there are great differences among the type of long term disability insurance available for income protection. Protect yourself before tragedy strikes.

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