Short Term and Long Term Disability | Different Kinds of Disability Insurance

My name is Jon Ross with Finance on a Budget. In this video, I'd like to talk to you about something that not many people like to think about, disability insurance. Sure, it's easy to live life thinking that nothing bad is going to happen when everything is fine and dandy. But when all of a sudden medical emergencies strike, or when you have to have a surgery right away, you're suddenly faced with the financial dilemma of how can you possibly make the money when you're in no shape to do so. So be sure to like, subscribe, and ring that notification bell. What is disability insurance? If you're not able to work like you normally do because of a sickness or injury, your finances take a huge hit. One that you may not even be able to recover from. Nobody likes to talk about this stuff because it's not exactly easy to talk about. But just like any other insurance, it's there to help you in a pinch when the worst things happen. The disability insurance is no different. Your disability insurance will help cover a part of your income if you're unable to work because of injury or medical condition. Sometimes your employer will be nice enough to buy this for you or at least offer a co-payment. More often than not, you will have to buy your own. And you really, really should. Because when you're bedridden and suffering with a huge loss of income day after day, your company sure as heck isn't going to be there to take care of you and your family. So in short, get yourself a disability policy. If you get disabled, you need money. That money needs to come from somewhere. And if you have insurance, you won't need to dip in your savings just to get by. Short-term disability. Short-term disability insurance covers temporary disabilities. This will help you out with about 60 to 80 percent of your income for three to six months or until you're well enough to go back to work. An example of this type of insurance is AFLAC. While the policies and prices will vary, having a disability like a heart attack, stroke, and cancer will easily pay for itself. However, something more common would be if you broke a leg. But once I started looking into the fine print, I found that what I came up with was a ton of fine print. They would cover this, but not that. The usual insurance stuff. At the end of the day, your broken leg won't even be covered for $3,000. A low amount like STDI plans typically cover up to 80 percent of your gross income. Disabilities generally include chronic conditions like back injuries, cancer, and heart disease, and general off-the-job injuries. They don't include injuries sustained at work. Those fall under workers' compensation. Most short-term disability benefits will cover a portion of your income for 30 to 120 days with a maximum benefit of 52 weeks. Coverage usually kicks in between 1 to 14 days after the injury or diagnosis, though the exact time frame could vary depending on whether you were ill or injured. Lastly, short-term disability can cost anywhere between $0 and way too much, depending on where you get it from. That's why I generally only recommend short-term disability insurance offered by your employer. This is the type of thing where you should have an emergency fund anyway. While you can get this privately, they are often not worth it. Long-term disability. Long-term disability insurance lasts longer and can even reach until retirement age. It can cover 50 to 68 percent of income. This is generally provided for by your employer, but in that case, it would only cover you while you're physically at work. This is why some people choose to supplement this with a separate policy to cover them during after hours. Let's say it's the weekend and you're using a table saw to cut some wood. Ah, the joys of home ownership. Instead, you cut your hand, and it takes a few fingers. Now, if your job is working at a desk, you may be slow, but you can continue to work. But if you're a professional magician, you may no longer be able to do card tricks or produce a coin from behind a child's ear. Your career has come to an end. This is where the long-term disability comes in. There are two basic types. Own occupation disability insurance, which means that you can no longer perform your professional career. This is the type of thing that athletes face. One blown out knee, and they are no longer able to do the sport at a professional level, so they have to retire. The other type is any occupation disability insurance, which means you can no longer perform any job. Unless you lose both arms, this may be hard to prove. This is why this insurance costs less, because they don't have to pay out too much. If you can afford an own occupation policy, then that's what you should get. I would also recommend a non-cancellable and guaranteed renewable policy. Non-cancellable means the insurer can't change the terms of the policy, including the premium rate, as long as the means that your policy can't be canceled as long as your premiums are paid. Be sure to include residual disability coverage, which pays benefits if you can work some of the time, but not all of the time due to a disability. It covers the partial loss of income with a partial payout of your disability benefit. Social security disability insurance, otherwise known as SSDI. Social security disability insurance comes as part of the benefit that you get from social security. Although this can be difficult to qualify for compared to work-related insurance. Qualifying for this means that you have to suffer from mental or physical disability that keeps you from working for at least a full year. The social security disability insurance, SSDI, program pays benefits to you and certain family members if you are insured, meaning that if you worked long enough and recently enough and paid social security taxes on your earnings. The supplemental security income SSI program pays benefits to disabled adults and children who have limited income and resources. While social security and supplemental security income disability programs are different, the medical requirements are the same. If you meet the non medical requirement criteria, monthly benefits are paid if you have a medical condition that is expected to last at least one year or result in death. The disabling qualifications are impairments considered severe enough to prevent an individual from doing any gainful activity. I was recently asked about SSDI and a part-time job. The government website reads, if you are working in 2020 and your earnings average more than $1,260 a month, you generally cannot be considered disabled. So I need to answer the original question with, if you're going to work, it should generally be under the table. Just like unemployment, if they know about it, they're going to cut off your funding really fast, even if you can't possibly function in the real world. Medicare and Medicaid. To be clear, Medicare is the federal program that provides health coverage if you are 65 or over or 65 and under if you have a disability, no matter your income. Medicaid is a state and federal program that provides health coverage if you have very low income. They're both social insurance programs, meaning that they allow the financial burdens of the illness to be shared between healthy and sick individuals and among poor and affluent families. If you qualify for both, then Medicare and Medicaid will join together and provide you with the best health care coverage. Affordable Care Act Marketplace. The Affordable Health Care Marketplace is otherwise known as Obamacare. Passed in 2014, it was supposed to allow people to log into a website, get government-assisted coverage based on their income. It offers options to people who have a disability, don't qualify for disability benefits, but still need health coverage. Brief History. It only barely passed because the Democrats controlled the House, the Senate, and the White House. Republicans have long been against it because it is paid for by the ultra-rich. When it opened in Connecticut, where I live, there were several companies competing, and I was able to get a fair price. As time went on, many companies actually left, and the choices went with them. Quite honestly, what we're left with sucks. While Obamacare may still be working for you, just keep in mind that not everybody is enjoying a fair marketplace, as the Republicans are still trying to dismantle it. How can you get a disability policy? Aside from the benefits you get from your social security premiums, you can also check if your company offers group disability insurance. This may already be part of your employee benefit package, but if not, you might be able to get it from a professional association, especially if you're self-employed. Group insurance provides safety in numbers. Your premiums are usually cheaper because the company or association is buying for a large group of people. Think about it as bulk wholesale discount in a way. If you're only purchasing individual disability insurance, it may be a little tougher on the wallet, but it also means that you can get a customized package according to your specific needs. Keep in mind that the replacement income is tax-free. It'll be helpful to consult with a financial representative or agent just so you know that you can add supplementary insurance on top of your existing package. For example, if your package only covers you for three to six months, you may be able to supplement it with a different policy that covers your retirement. Another thing is, you don't want to wait until something actually happens. You need to be proactive about this because there will likely be a waiting period before you can put in a claim against the policy. How much disability insurance do you need anyway? This is all about budgeting and figuring out how much your expenses are on a regular basis. Ask yourself this question. If you've got your last paycheck tomorrow, how much money would you need to survive? Factor in the housing, utilities, food, loan payments, child care, auto expenses, any college or tuition payments, and so on. Find out what your costs of living are and discuss it with your employer or agent to see how much you need to fill that gap. Figure out what counts as disability as there are varying degrees of what being unfit for work really means. This can be especially tricky as there are terms on full disability and partial disability too. The cost of your disability insurance will vary and depend on how risky your work is as well as your age. The older you are, the more expensive your premiums will be. You should also consider whether or not the insurance is portable, which means that you can keep it even if you leave your current company. Check to see how long you need to wait before you can claim anything as well as what changes in premiums during the renewals. There can be tons of terms and conditions that you really need to be paying attention to, which is why consulting with an agent or financial representative will be a huge help. They'll at least be able to spot a bad deal from a mile away and help keep you from spending your hard-earned dollars on unnecessary terms that you don't need. If you save for your emergency fund regularly, then you probably don't need short-term disability. Remember, 90% of disability claims are due from illness, not injury, so everyone should have some sort of long-term disability insurance because you never know when you're going to get something serious and life-changing. Be sure to give this video a like, subscribe, and ring that notification bell. Thanks for watching.