Thursday, March 02, 2006 | Married & Mortgaged

A couple of weeks ago I wrote about how my husband and I have four or five different kinds of insurance and still feel underinsured.

We have health, dental, car, property and life insurance. If you count the homeowner’s insurance that we pay for through our homeowner’s association fees, we actually have six different types of insurance. Six kinds of insurance for healthy, 30-somethings with no dependents, except a dog.

I’ve read enough personal-finance books to know that any expert would tell us we’re missing one big one, possibly the biggest: disability insurance.

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In fact, insurance and financial experts say I’m more likely to suffer a disabling injury than die prematurely. According to the Social Security Administration’s disability guide, a 20-year-old has a three in 10 chance of becoming disabled before reaching retirement age.

Nearly one in five Americans will become disabled for more than one year before age 65, according to the Life and Health Insurance Foundation for Education, a Washington, D.C.-based nonprofit dedicated to educating consumers about insurance.

Looked at another way, four in five Americans will never become disabled before 65 and that 20-year-old has a seven in 10 chance of not being disabled either. So which odds should we bet on? Weigh the costs of insurance vs. the costs of suffering a major disability and losing your ability to earn money. How would you live?

Ever wonder why life insurance is so cheap and why employers hand them out like they’re doing you a major favor? Think about it: insurance companies peg premium costs to the likelihood of a claim, and disability insurance is the one that’s expensive.

It hurts me to think about it. In my perfect world, insurance would be completely unnecessary. It’s so pessimistic. It feels like we’re just giving money to people and hoping they never pay us back. That is what we’re doing, which is why I hate it so much. It’s like gambling only you’re hoping to lose. It seems like a pretty big scam, actually. Especially when you consider every story you’ve ever read about a homeowner or sick person who was hassled about claims by the very insurance company they had been loyally paying for years.

And yet, about a month ago I learned that the husband of an old friend had a stroke. This is a person in his thirties, who was walking around perfectly healthy and then, Bam!


I feel a little ashamed to say that my first thought after, “I hope he’s going to be OK,” was, “I hope they have disability insurance,” or a really fat savings account to cover the two or three months that neither of them will be working. He’s expected to make a full recovery so a reasonable savings would probably get them through this crisis. But what if he wasn’t going to be OK, what if he could never work again, or, could work, but not in his profession?

I’m always amazed that people buy insurance for their televisions and digital cameras, but fail to protect their most valuable asset: the ability to earn income.

Disability income insurance plans and costs vary according to your age and income and all the other factors insurance agents think about. See if your employer offers a plan because it’s going to be more affordable than purchasing one on your own. You may also want to buy supplemental coverage if your employer’s plan doesn’t meet your needs.

Either way, insurance and personal-finance experts recommend looking closely at a few key clauses.

– Make sure the policy is non-cancelable to age 65. That means the insurance cannot cancel your policy and the policy premiums cannot be changed as long as you pay them on time.

– Benefit amount: Disability insurance generally covers between 40 percent and 60 percent of your pre-disability income. Start an emergency cash fund if you haven’t already.

– Term of benefits: Disability insurance can cover your expenses if you can’t work for two months or if you can never work again. If you’ve got enough savings to cover your expenses for two to six months, experts say you should focus your resources on a long-term disability plan.

– Own occupation vs. any occupation: This one is big. Like Social Security, “any occupation” disability insurance plans don’t cover you if you can work at something. So if an illness prevents you from continuing to work as a top-rated salesperson traveling all over the country, you won’t get benefits from an “any occupation” plan if you could work as a dishwasher, for example. If you want to maintain some semblance of your lifestyle, buy a policy that specifies “own occupation” coverage. These plans consider you officially disabled when you can no longer perform the functions of your job.

– Waiting period: This clause determines when your payments set in. The longer you can hold out by relying on personal savings, the cheaper your insurance premiums will be.

– Residual benefits: This benefit covers the difference between your old salary and your new, post-disability, salary if your disability forces an occupation change.

– Inflation protection: For an added premium, you can purchase insurance that factors a cost-of-living increase into your benefits.

– Portability: One significant advantage of buying your own policy vs. buying an employer-sponsored plan is portability. You can take it with you from job to job.

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