Do Young People Need Disability Insurance?

Millenials are young. They are not invincible. Indeed, they are every bit as subject to injury and chronic debilitating disease as their older coworkers. But they are much more likely to be going without disability insurance.

The typical 20-something needs disability insurance much more than they need life insurance. Young people are more likely to own life than disability, though, for a variety of reasons.

Disability income insurance – frequently referred to as “DI insurance” or simply “disability” steps in when a worker can no longer earn a living because of an injury or illness. Disability insurance is designed to replace a significant fraction of a person’s paycheck – usually 50 to 65 percent of it – so that the individual can take care of basic necessities until he or she recovers and can rejoin the work force.

Fact: There is a 1 in 3 chance that any given 20-year-old will become disabled prior to reaching retirement age. But 4 in 10 workers currently have no disability insurance coverage of any kind, according to information from the Metropolitan Life Insurance Company. Few of these youngsters have much appreciation of the following facts:

Multiple sclerosis, Lou Gehrig’s disease, AIDS and many cancers such as cervical and uterine cancer frequently strike people in their 20s.Health insurance the worker has at work can help pay doctor bills, but neither health insurance nor long term care insurance can pay rent or put food on the table.Only disability insurance provides money to live on.Only disability insurance puts gas in the tank so the patient can get to treatments.

Younger workers are highly likely to be living paycheck to paycheck. A sudden disability that forces the worker out of the workforce is a devastating event. In some ways, the financial effect of a disability can be more devastating to the family than the financial effect of a death. If a young worker dies, the family is out that person’s income. But the family can get on with life after grieving the loss. A young disabled person, however, may need ongoing care, which can be expensive or time consuming.

The limits of workers compensation

Workers compensation insurance is a vitally important protection for young workers – who often work in potentially hazardous occupations, such as construction, roofing, security and transportation. But less than half of all disabling conditions that strike young workers are workplace-related, and therefore most disabling conditions do not qualify for workers compensation insurance.

The leading causes of disability are not workplace incidents at all, but debilitating illnesses, including muscular-skeletal diseases, immune system disorders, cardiovascular disease and cancer.

Short-term and long-term policies

It is not unusual for workers to receive at least short-term coverage at work. Short-term disability covers a portion of the disabled individual’s income for anywhere from a month to a year – after an exclusion period that typically falls within the employer’s paid time off policies.

Long-term disability kicks in when the disability disrupts the individual’s ability to earn a living after the short-term policy expires – often after 30, 60 or 90 days.

Definitions matter

When it comes to disability insurance, the cheapest policy isn’t always the best deal. Rather, the best deal is the policy that is most likely to pay the claims you are most likely to need. For this reason, it’s important to consider more than just premium when selecting a disability policy. The definition of disability is key: an “own occupation” policy will bay benefits if the disability prevents the individual from working in his or her own profession. The term “any occupation” indicates that the policy will only pay claims if the insured cannot work any reasonable job. The own-occupation policy is the policy that is more likely to pay a claim if the insured becomes disabled. Naturally, all other things being equal, the “own occupation policy” is somewhat more expensive.

On the other hand, younger workers may have more luck in adapting to another profession in the event of a disability. Meanwhile, young people have a need to save money. So an “any occupation” policy may make more sense for younger workers.

Getting Coverage

Many young workers get at least some kind of disability coverage through their workplace, but the coverage is limited. Most people who are independent contractors or business owners will need to get their own coverage.

Be prepared to answer medical questions, and in some cases, pass a medical exam. Also, be prepared to document several years’ worth of income – generally by showing your tax returns. Verifying income during the underwriting process is an important way for insurance companies to prevent disability fraud, which is common. The industry strives to set benefits high enough to help workers survive, but low enough to provide workers a healthy incentive to get back to work at some point. That helps keep premiums for everyone more affordable. But for that reason, disability can be more difficult to obtain in the individual market than other lines of insurance. It is important to obtain coverage when you are still healthy. If you wait for symptoms to strike, it is usually too late to get disability coverage from any source.

About Brian Hendricks

Brian Hendricks is the President of Fidelity Insurance Group. Brian started Fidelity in 2003 with 0 clients. Today Fidelity Insurance Group is a Premier Independent Insurance Agency in Florida with over 3,000 families and businesses insured. Brian currently serves on advisory boards for 2 of the largest property insurance companies in Florida. Knowlege, Integrity, and Committment are his and his agency's guiding principles.
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