9 myths about disability insurance

If you relied on an app to automatically transfer money to your checking or savings account, would you protect it? Most of us would do what we could to ensure that app kept delivering.

Well, if you’re earning a paycheck, you’re just like that magical app. And while it might seem unlikely that you wouldn’t be able to keep working (about as improbable as unexpected transfers to your cash app) your income could be at risk. Injury or unexpected illness could knock anyone—even a money-maker like you—out of business.

One in four adults lives with a disability. Think injuries from a car crash, back problems, pregnancy complications or cancer treatments. That’s where disability income insurance comes in. It can replace part of your income should you become sick or injured and are unable to work, creating a safety net when you need it most.

It’s easy to overlook protecting your income, but it’s the one asset that makes obtaining—and keeping—everything else possible. If you were suddenly too ill or injured to earn a paycheck, how would you pay your bills? How soon would lost income today change your future?

You may have reasons why you haven’t purchased disability income insurance already. If your decision was based on these common assumptions, learn the facts that dispel nine myths about disability insurance.

Most employer plans cover just a portion of your salary. What’s more, the benefits are typically taxable because your employer is paying the premium. That means your income would go down even if you have disability income insurance coverage from work. Ask yourself if you would be comfortable living on potentially less than half your salary, and then think about filling that gap with tax-free supplemental insurance.

Whether you work full-time or part-time, you can purchase personal disability income insurance. If you’re self-employed or a stay-at-home spouse, there is disability income insurance for you too. Only a few insurers offer disability income insurance to stay-at-home spouses, whose role would not easily be replaced in the event of illness or injury.

If you’re wondering how much disability income insurance will cost, you can insure your current lifestyle for generally around 1% to 3% of your salary. The specific cost of your coverage is determined by many factors, including how long you choose to wait before benefits kick in, how long those benefits will last and how much income you need to replace.

Most disability income insurance policies also offer optional coverage, called riders. You may choose to add a rider if:

• You want to buy more protection in the future as your income goes up.
• You want to add supplemental protection in addition to existing disability income insurance you may already have.

Choose the coverage period that works for you, from 12 months to 10 years, or to age 67. Consider monthly benefits based on your current earned income, from $500 to $15,000 per month.

While you can put off purchasing disability income insurance, it may cost you more in the future because people usually don’t get healthier as they age. Or, with the passage of time, you may not qualify.

You could choose to start with the minimum coverage now, with an optional rider that would allow you to increase your protection in future years if your income increases, regardless of your health at the time.

Having an emergency fund is a critical part of any financial plan, but have you considered how long it would actually last if you had to use it to pay monthly bills? Could you replenish the savings if you spent it while not earning a paycheck? Having a disability insurance policy could help alleviate these concerns.

Your monthly spending might seem like a seesaw in the best of circumstances. But if you’re unable to work due to illness or injury, things could change fast. Any gas money you save being home, for example, could get spent quickly on medical expenses.

If your paychecks suddenly stopped coming, how would you save for long-term goals like retirement? If you become disabled and are no longer able to earn a paycheck, you won’t contribute to or receive any matching contributions from an employer-sponsored plan, such as a 401(k) or 403(b). What’s more, if you borrow or withdraw funds from your retirement accounts to pay monthly bills, you may have penalties and taxes to pay. Your savings may never recover from early withdrawals.

Think about school activity fees, weekend adventures and the bills that are possible with two paychecks. If your lifestyle benefits from both of you working, one spouse’s paycheck likely won’t provide enough income to support your family.

Simply put, the process for qualifying for Social Security disability benefits is challenging and time-consuming. By some estimates, initial applications face a denial rate of 70%. If your request were approved, the benefits would be highly regulated and may cover just a small portion of your current paycheck.

The truth is most illnesses and accidents happen outside of work. In fact, only 9.1% of preventable injuries occurred in the workplace while 76.3% happened at home, according to the 2021 Injury Facts Report from the National Safety Council. Keep those statistics in mind if you’re hoping to rely on workers’ compensation insurance. It only covers injuries that happen on the job.

Bottom line: Even if your employer offers coverage, there could be a gap you need to fill.

As you consider strategies to help protect your income, remember that crowdfunding (like GoFundMe) is not recommended as a suitable replacement.

Connect with a Thrivent financial advisor to review the protection you have in place and for guidance on your situation.