I'm 27, single, in pretty good health. I have basic disability insurance through my work (construction), but it was suggested that I buy additional policy. I don't have a lot of extra cash right now, but should I be including this in my expenses?
Hi Jacob, Thanks for the interesting question as I bet many readers question the same concern, especially if they are not single and someone else is dependent on their income. You should ask yourself what would happen if you were unable to work (become disabled) from a financial perspective. If the answer is significant financial hardship, you may consider pricing a disability policy (beyond current coverage). With the knowledge of the cost, compare how your other financial goals would be affected now that you have fewer funds (premiums paid) going towards other needs and desires (retirement, emergency fund, etc…). Given that you are young and single, your financial risk of being disabled may be higher than death. Measure the costs against the perceived benefits (of all choices) and decide which gives you the most benefit. I agree with the previous answer from Eve. Gain knowledge from someone who is not directly compensated by their recommendation. Good luck.
Hi Jacob, That's a great question. Your disability through work may be 50% or 60% of your normal take-home pay, which is taxable income if your employer pays for it. If disabled, you would need to calculate your ability to get by on e.g. 60% of your income pre-tax. Given your age, stand-alone disability policies may be "relatively" affordable but disability policies can be expensive. You should review this issue along with the issue of making sure you have sufficient life insurance IF you plan on marrying and/or have anyone who otherwise would be affected financially by your demise. The best policy is to seek help from a professional who preferably does not necessarily stand to benefit from selling you policies.
By basic disability, I’m assuming you meant short term disability. Those policies are covering you for up to six months. If this is the case my recommendation is to add an additional long term policy that will cover you after that period.
At your age and health condition you can find a good policy with a low premium that will stay level. Remember, you are protecting your future income “just in case.”
Ask yourself this: should you by only the very basic automobile insurance, or should you cover your car for liability too? The risk of becoming disabled later on is greater than totaling your car and having a major liability case with it.
Statistically, there is a greater chance that someone will experience a disability than a death in the 25 to 40 -year old age bracket. Considering the industry that you are in, you may have a higher exposure as well. Given your age, your premium cost may well be lower to get now rather than later. If you plan to marry and have a family or a mortgage, you will need to consider the impact of living on a fraction of your current earnings so getting this in place before there is a need while you are young and can qualify is worth looking into.
Remember, you can't count on receiving disability payments from Social Security. The time to go through the application and appeals process is long (maybe more than 2 years) and the funds for this portion of Social Security are actually more likely to run out by 2018 unless Congress acts to change it (not likely given the current make up and stalemate in Washington).