How a life insurance policy works is pretty simple and straightforward. You purchase it, and in the event of your death, your loved ones will receive the funds provided by the insurance policy. However, what about if you become disabled? A disability, like the loss of a limb or becoming permanently bound to a wheelchair, can have devastating effects on your loved ones and your finances. A disability could result in the loss of your job, or force you to take a lower paying position, which can impact your ability to afford daily expenses, not to mention make it difficult to save for the future, such as your children’s college education, or your retirement.
Given the financial hardship that a disability can cause, it begs the question: Will your life insurance policy cover a disability?
The answer to this isn’t really cut and dry. To help you better understand if you and your family will be financially protected by your life insurance policy should you become disabled, here is a look at some valuable information that will answer this important question.
Do Life Insurance Policies Cover a Disability?
The majority of life insurance policies do not cover a disability. Typically, the only way to ensure you and your family will be safeguarded financially is to purchase an additional insurance policy that will offer remuneration in the event that you become disabled: A long-term disability insurance policy.
Long-term insurance disability essentially provides an income replacement. Unlike life insurance, which pays out a lump sum to the beneficiary you have selected, long-term disability will pay out a percentage of your former salary every month that you are disabled, in the event that you become disabled.
If you already have a life insurance policy, or you decide to purchase a policy, you may be wondering how you can fit paying for long-term disability insurance into your budget. When you factor other monthly expenses that you are already obligated to pay, like your car insurance, your mortgage, your home owner’s insurance, and of course, your life insurance, you may be thinking that you simply don’t have the funds to cover an additional insurance policy that will cover a disability. And, you may also be thinking, “What are the chances that I’m going to become disabled anyway?” So, you may put off getting that additional insurance coverage so that you can make ends meet every month, or so you can actually put money away for the future.
Why Disability Insurance is Important
So, you ask yourself, “What are the chances that I am going to become disabled?” You think that the chances are slim to none, which means you won’t need additional insurance coverage. Well, that may be one of the worst decisions you could make.
Believe it or not, your chances of becoming disabled during your working life are actually a lot higher than you might think. While the chances of being injured on the job and suffering a disability may be low in your area of work, there are actually many ways that you can become disabled. For instance, you could become injured in a car accident, or a slip and fall when you are nowhere near work. And, the majority of disabilities are actually diseases, such as cancer, or a chronic condition, such as multiple sclerosis or slipped disc in the back. In fact, it is estimated that one in four 20-year-olds will experience some type of disability before they reach the age of retirement, and there is a 24% chance that the average 35-year-old who works in an office setting will become disabled at some point.
Given this information, it is pretty safe to say that disability insurance is an important purchase.
How to Afford Disability Insurance
If your budget is already stretched thin, you may be wondering how you are going to be able to cover the cost of another expense. Believe it or not, there are ways that you can afford to add an long-term disability insurance policy to your monthly bills. Here are a few options.
The younger you are when you purchase your insurance policy, the less expensive it will be. This goes for both your life insurance and your long-term disability insurance. For both types of insurance, the premiums you will pay are based on your health, and usually, younger people are healthier than older people. In regard to long-term disability insurance, once you hit your early thirties (which is, by no means, old) the cost of a new policy goes up significantly.
Work with an Independent Agent
If you are already past your 20s and you didn’t purchase life insurance or long-term disability insurance, you can still find savings on both types of policies, and working with an independent agent is one of the easiest and best ways.
An independent agent will be able to compare policies from various insurance companies. This is important because different insurance companies use different methods for calculating the premiums they charge.
Get a Life Insurance Rider
If you simply can’t afford to purchase both a long-term disability policy and a life insurance policy, there is another option; you may be able to get some coverage for a disability through your life insurance policy by using riders. Insurance riders allow you to add additional coverage and stipulations to your life insurance policy. There are two different riders that you can add to your life insurance that will aid in a disability:
- A disability income rider – This rider is very similar to a long-term disability policy. Should you become disabled, your life insurance policy will pay out a monthly stipend.
- Disability waiver of premium – This rider doesn’t actually pay out any money, but it does allow you to stop paying your life insurance premiums in the event that you become disabled. This could save you some money while you are finances are limited during your recovery period. Once you recover, you will continue to pay your life insurance premiums.