As you approach your open enrollment deadline this year, you may forget to pay attention to one key area.
Social Security Administration.
A total of 20.1 million adults of employment age report a work disability, according to research published by the National Institutes of Health. Common causes include back or neck problems; depression, anxiety or other emotional issues; and arthritis or rheumatism.
And when you’re plagued by these issues and cannot work, disability insurance can help you bridge the pay funding gap.
“As people go through their open enrollment, oftentimes their patience runs out after choosing their 401(k) solution, their health-care solution or their [health savings account],” said Jamie Kalamarides, president of Prudential Group Insurance. “Don’t forget about disability insurance.”
You may be tempted to overlook disability coverage for another reason: cost.
Disability insurance is often more expensive than term life insurance, according to financial advisor Tom West, partner at Signature Estate & Investment Advisors, which leads many to neglect the coverage.
Yet when planning for clients, West said he actually puts disability coverage high on the list of priorities.
“The probability of missing six to nine months of work because of a car accident or a broken ankle is so much exponentially higher than dying prematurely for a lot of folks who are in their younger years,” West said.
Long-term disability, which ordinarily kicks in after three to six months, typically costs 1 to 3 percent of a worker’s annual salary, according to Policygenius.
For most individuals who are covered through their employer, that policy typically replaces about 60 percent of their income.
To determine whether you have enough disability coverage, take a look at your income, particularly the cash coming in and the cash going out, said Leston Welsh, head of disability and absence management at Prudential Group Insurance.
Keep in mind that if you do become disabled, your costs could go up, Welsh said. For example, you could have additional child-care or medical expenses.
When you are disabled, you do not want to deplete your emergency or retirement savings.
You should also consider how much you are saving toward retirement when estimating how much income you will need, West said.
“You’re trying to maintain your lifestyle and your ability to hit future financial goals, and obviously your ability to save is pretty material on that,” West said.
Also keep in mind how many people will be affected if your cash flow takes a hit — if you are a single-income household versus a two-income household and how many dependents you have.
If you decide you want more income protection, your employer may allow you to purchase additional coverage, Welsh said.
If you are self-employed, you may be able to get coverage through a professional association. You could also opt to get a policy on your own.
Going it alone can be more expensive, because group plans tend to spread the risk out among employees, Welsh said.
“If you’re someone who is very, very healthy, it could not be as expensive,” Welsh said.
You may also shop online for policies through national brokerages, West said.
One key thing to remember, West said, is not to neglect other types of coverage, such as health and life insurance, which also cover catastrophes.
“You want to make that first pass across all of those risks before necessarily doing the belt and suspenders on any one of them,” West said.