Disability can strike like a bolt from the blue: unexpected, unwelcome and unaccommodating. And unfortunately, many people are completely unprepared for the financial hit that it can bring.
Imagine that you are suddenly unable to work, leaving you without an income. You quickly exhaust your savings, undermining your family’s financial security. The money that has been put away for a vacation, the kids’ education and retirement now is spent on gas, groceries and other necessities. The worry is suffocating. The stress and sleepless nights can seem unbearable. What’s worse is that it could continue for a long time. Long-term disability lasts 31.2 months, on average, so the long-term financial impact can be devastating. In fact, more than half of all personal bankruptcies and mortgage foreclosures are a consequence of disability, according to a Harvard study.
All of this begs the question: What can you do? Prepare a financial security plan.
Preparing for disability does not have to be overwhelming. A financial security plan provides a clearer understanding of the financial “big picture,” including:
- Sources of income, monthly expenses and lifestyle
- The impact a long-term disability could have on them
- Preparing a plan of action to address the crisis
In this article, we will explore possible sources of income should a disability occur:
- Employer Sick Pay: Does your employer have a sick pay program for employees? Eligibility and payments vary from company to company, but you should be able to get this information from your benefits manager.
- Disability Insurance Benefits: Does your employer offer group disability coverage? If so, understanding the parameters of the benefits are important. If there is group disability coverage, an employee may be able to supplement this with an individual policy. If there is not group coverage, an individual should consider implementing his or her own policy. Self-employed individuals can also benefit from owning individual disability insurance.
- Social Security Disability Insurance (SSDI) and Workers’ Compensation: An individual needs to be completely disabled in order to qualify for SSDI, and there is usually a six-month waiting period before SSDI benefits take effect. Workers’ compensation pays benefits if a person is injured at work or suffers a work related illness. These benefits can help pay for the medical care and rehabilitation needed to help someone return to work. Workers’ compensation generally pays a portion of one’s wages or salary, and benefits vary by state.
- Personal Savings: Some people have adequate amounts of money saved that can help supplement or replace income during a prolonged disability. Others, unfortunately, are not so lucky. Any disability, especially one lasting more than 90 days, can quickly drain savings, causing unnecessary stress.
- “Last Resort” Income Sources: Some people are forced to pay expenses with credit cards, take out a second mortgage, open up a home equity line of credit, withdraw money from a retirement plan or ask family and friends for assistance.
As part of a personal financial security plan, try your best to stay healthy. Taking responsibility for your health will have a direct impact on your physical, psychological and financial health.
Whatever your age, it’s never too soon (or too late) to begin. By building a personal financial plan, working with your financial advisor and insurance specialist, you and your family will be better prepared to face the future―no matter what it holds.
Read More: Disability insurance is not the only type of insurance working individuals should consider owning. Learn more about life insurance policies and when you should update them in our blog post, Do You Know if Your Life Insurance Policy is Over-the-Hill?