Do You Need a Disability Insurance Policy? Maybe Not.

You may be pleasantly surprised to learn that the odds of needing employee disability insurance are much lower than you previously thought. This is the case if you work for someone or work for yourself.

Disability insurance replaces a portion of your income if you are unable to work. Usually, it pays up to 60% of your income. The benefits may last a few months or several years, depending on the policy you buy. The insurance industry relies on fear to sell these policies. They throw around all kinds of statistics to convince you of the need to buy this expensive coverage. They use the same tactics to sell you whole life when you really might just need term life insurance.

While people get injured all the time, very few injuries actually keep people from earning a living. The insurance industry reports on the number of people who become injured each year, but they rarely mention the fact that most of these people were able to keep putting in their 9 to 5.

The New York Times interviewed Guardian (a huge disability insurance provider) and reported that a person age 25 has only a 30% chance of being disabled for 90 days or more before she retires. Clearly if you are older, your risks decrease because you probably spend less time mountain climbing or driving like a maniac.

But I have even better news if you have a white collar job. Just take care of yourself and stay away from booze and cigarettes. Your risks of becoming disabled may be less than 10%, according to the Council for Disability Awareness. But wait, there’s more!

First, some people who make disability claims aren’t really disabled. They just don’t feel like working or telling the truth.

Also, doctors skew the statistics. According to the Times, because doctors buy tons more disability coverage than others, the statistics are off. Doctors make more claims than other professionals. If you exclude them, the odds of a white collar worker making a claim go down even more.

So your odds might be really low, and if you have a good policy at work, that might be all the coverage you need. Of course, that policy won’t likely replace all your income, and it will run out at some point.

Government disability programs aren’t that hot, so don’t count on them. Social Security could take 12 months to start paying; the benefits are low; and it’s tough to qualify. Worker’s compensation only covers you if you get smacked up on the job, and most people become disabled outside of the workplace anyway.

If you decide to buy your own policy, like I did several years ago, you might get frustrated. It’s tough to find a good agent who represents more than one company. That being the case, make sure you get quotes from at least three different companies – even if you have to talk to three different agents.

Make sure you learn about the policies too. And disability insurance for self-employed people is an even more important subject.

The sticky point for most people when they buy disability insurance is own occupation coverage. Basically, you will pay more for a policy that pays you if you can’t do your own job and you’ll pay less for coverage that pays only if you can’t do any job. Personally, I don’t think this is a big deal – especially if you are a white collar professional. Let me use my job to illustrate.

To do my work I need to be able to think, write and communicate. That’s it. If I can do these three things, I can work. If I can’t do any of these, I can’t work.

But I can’t imagine a situation where I would be unable to do all these three, yet suited for other work. I mean, if you can’t think, write and communicate, what can you do? That being the case, why not get a cheaper insurance policy that only covers employment of any kind?

Even though the odds of making a claim are lower than the insurance industry advertises, I’m still glad I have my disability policy. Am I too cautious? What’s your stand?