While you probably know the importance of preparing for retirement, have you ever considered what would happen if you become disabled before you reach retirement age? Studies say that 25% of people in their 20s will become disabled before retirement. While many people believe that Social Security Disability Insurance is the answer, unfortunately this coverage is not sufficient in most cases.
The Problems with Social Security Disability Insurance
In order to qualify for Social Security Disability Insurance, you must meet their strict definition of what it means to be “disabled.” In order to qualify for benefits, your medical condition must:
- Prevent you from doing your previous line of work
- Prevent you from adjusting to a new field of work
- Be expected to last at least one year
Even if your medical condition qualifies you for Social Security Disability, it takes time for everything to be processed and approved. You will not receive any benefits until at least 6 months after you become disabled.
Social Security Disability benefits also do not pay very much. The average monthly benefits were only $1,165 in 2015. It can be hard to sustain yourself and your family at this income level.
The Advantages of Private Disability Insurance
Instead of relying on Social Security Disability to provide for you if you were to become disabled, purchasing a private disability insurance plan is a smart move. The biggest advantage is that you can purchase a plan that is customized to your needs. You will have the freedom to select the features and terms of your coverage, such as:
- How quickly your benefits will kick in (typically 30 to 90 days)
- The size of your monthly benefits (up to 60% of your current income)
- How long your benefits will last (a few years, until you reach retirement age, etc.)
With private disability insurance, you can also choose how severe your disability must be in order to qualify for your benefits. With some plans, you will only receive benefits if your disability prohibits you from working any kind of job at all. Other plans will allow you to receive benefits if your disability prohibits you from working your current job.
Purchasing Private Disability Insurance
If you are interested in purchasing private disability insurance, the first place you should check is through your current employer. When buying coverage through your employer, you should receive a group rate that is much cheaper than what you could find in an individual policy. Your employer may also contribute to the premiums on your policy.
If purchasing coverage through your place of employment is not an option, consider other organizations that you may be able to receive a group rate from, such as a union or trade association. In most cases, the discount you receive greatly exceeds any membership fees or dues you must pay to join. Even if you are self employed, there are several unions out there just for freelance workers.