Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.
If you were hurt in a car wreck, accident around the house, or taken out of commission by a surprise illness and couldn’t go to work for a while, would your finances get you through? Perhaps you have three, six, or more months of emergency savings. But eventually, most households would run out of money.
As a self-employed freelancer, I set a goal of about one year of savings in my emergency fund, but with a stay-at-home wife, three kids, two dogs, and a mortgage, I know I have to do more than save to protect my family.
After reading about how another Business Insider writer signed up for disability insurance, I was inspired and signed up for the same policy.
What is disability insurance?
Disability insurance is a type of insurance that pays you a monthly benefit if you become disabled and are unable to work. You can find short-term disability insurance, which usually kicks in right away and lasts for a few months, or long-term disability insurance, which requires a longer waiting period but can last much longer.
According to the Social Security Administration, 20-year-old adults have a one in four chance of becoming disabled before reaching retirement age. With those odds, I know I don’t want to risk going without disability insurance.
If you have a full-time job with great benefits, you may have access to both short-term and long-term disability insurance through work. If you do, that’s usually well worth the payroll deduction. If not, you can find your own plan outside of work directly through an insurer or insurance agent.
I followed the example of my fellow Business Insider writer
Last summer, my friend and fellow Business Insider writer Jackie Lam wrote about how she experienced an eye injury that left her unable to work for a month. After that wake-up call, she signed up for disability insurance from Freelancers Union, a nonprofit that offers a range of services and benefits to freelancers, including disability insurance.
Jackie’s policy costs $23 per month and includes a benefit worth $2,500 per month. My mortgage and health insurance alone are more than $2,500 per month, so I definitely wanted a higher level of coverage.
Disability insurance from Freelancers Union comes with a 30- or 90-day elimination period, which is how long you have to wait before coverage begins. I took the maximum coverage available for my annual income and age. I pay $36.12 per month for $5,000 per month in coverage.
While I pay Freelancers Union automatically every month with my business credit card, the policy is actually underwritten by The Guardian Life Insurance Company of America. No matter where you buy insurance, it’s important to understand how the policy works and who pays your claims if you do become disabled.
What to look for in a disability insurance policy
When setting up my disability insurance, there were a few important areas I wanted to review before signing on the dotted line:
- Monthly cost for desired coverage: Cost is a top consideration with any insurance product. Before settling on Freelancers Union, I shopped around for other disability insurance policies that came with higher monthly premiums. Rates may vary depending on the monthly benefit you choose, as well as factors like your age and health history.
- Waiting period: I picked a 90-day waiting period for my disability insurance as I always have an emergency fund with more than three months of living expenses. Depending on your financial situation, you may be willing to pay a little more for a shorter elimination period or can save by having a longer elimination period.
- Insurer ratings: Guardian is the insurer behind my policy. It is rated A++ by AM Best, a measure of the insurer’s ability to pay claims in the future. It also earns a positive rating from J.D. Power, a company that rates the customer satisfaction of insurers and other industries.
Ultimately, your disability insurance should cover your essential monthly bills if you are unable to earn a paycheck. Social Security Disability Insurance may offer you coverage as well, but it’s likely not enough to cover your bills on its own.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.