Disability Insurance

"Insurance: An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table."- Ambrose Bierce

Shortly after I got married, my new wife and I attended a free financial planning seminar. We were by far the youngest persons in the room (I was in my late 20's at the time.) Everyone else was near retirement by which point it's a bit late to begin "planning." As a follow-up to the seminar we were offered a free review of our assets with a Financial Planner. We listened carefully to the advice offered and followed all of it EXCEPT for one item: buying Disability Insurance.

The purpose of disability insurance is to compensate for lost wages if you are unable to work due to injury or medical reasons. (AFLAC says the duck.) We decided against buying disability insurance because of the high cost - much more than our car or home insurance.

A reason for the high cost might be the high odds of collecting on the insurance. The book “How To Insure Your Income” claims everyone has an 80% chance of being disabled for 90 days before age 65. Others set the odds much lower at 30% for blue collar jobs and 10% for white collar jobs. In my case I've been "disabled" twice for back surgery, each requiring a six week recovery. In both instances I took a brief sick leave and was allowed to work from home with a laptop computer. I was fortunate.

Alternatives to disability insurance include:

-Social Security. It may take more than a year for your claim to be processed and longer if you appeal a rejection. It pays at best a few thousand dollars a month.
- Worker’s compensation. Covers you only if you were hurt on the job.

Bottom Line

If you're interested in Disability Insurance, check out Questions to Ask Before Buying Disability Insurance. Questions include:

• What percentage of my income will you replace if I become disabled?


• Is there a maximum payout that you’ll make (in dollars) per year, no matter what I earn?


• If I can’t return to the job I had before, can I continue to draw payments forever? Until I’m 65? Or some shorter period of time?


• Will you guarantee that I can renew the policy each year, at the same price? What about at a higher price?


• If I’m paying the premium on time, are there any circumstances under which you can cancel my policy?


• What if I’m unemployed and can’t pay the premium for a short period of time?


• Is there a waiting period after you become disabled before you can start collecting on a claim?


• What injuries or illnesses does my policy exclude? If I’ve already been treated for depression or back pain or cancer will you not cover those maladies at all in the future?

Get the answers in writing!