Do I Need Disability Insurance?

The decision to buy disability insurance depends on your financial situation. If you are unable to work and don’t have enough savings or other income to cover your expenses, disability insurance can be a lifesaver. Types of disability insurance include:   

Social Security Disability Insurance. To qualify, you must have: 

• Been employed in a job in which you paid into Social Security.  
• A medical condition that meets the Social Security definition of total disability. Those who are only partially or temporarily disabled aren’t eligible. 

Private disability insurance. This is typically available either through your employer or directly from an insurer. You may want to consider it if you want to receive more than is available through government insurance or replace it if you don’t qualify.   

There are two types of private disability insurance:  

• Short-term: policies have a waiting period of up to 14 days and pay benefits for up to 2 years.  
• Long-term: policies can have waiting periods of a few weeks or a few months, and the benefits may be paid out from a few years up to the recipient’s lifetime.  

What’s a waiting period? The length of time that must pass before you can begin to collect benefits. You can typically choose a period that lasts from 30 to 720 days. The longer the waiting period, the lower your insurance premium will probably be.   

To figure out what’s best for you, consider how long can you afford to live on your savings while waiting for the policy to begin payments. If you have enough to get by for a while, you may want to consider a long-term policy, since it features cheaper premiums. If you don’t have a lot in savings, a short-term policy might be best.  

Besides adjusting your waiting period, other ways to reduce the cost of disability insurance include:  

• Lowering the monthly benefit you will receive. This may be feasible if you already have an emergency fund or other savings you can dip into to help cover your costs if you can’t work.  
• Reduce how long you will receive benefits. This is risky, since your payments may end before your disability does.  
• Check your policy to be sure you’re not paying for additional options you don’t need.