Last year, I was talked into convinced that I needed to purchase disability insurance because the teaching position I’m currently in doesn’t offer this benefit and I wouldn’t qualify for state disability based on my annual Social Security reports. So I decided that for $55 a month, I could have the peace of mind that if anything happened to me and I couldn’t work, I’d be entitled to a very small monthly disability payment; $1,500 to be exact. To clarify a little more, working for a school district that doesn’t deduct Social Security, but instead deducts money towards a pension plan, excludes me from receiving any kind of state disability (I haven’t earned enough credits). Or at least that’s what the insurance salesman told me last year when I signed up for this plan.
I also am under the impression that my pension plan doesn’t offer disability and am awaiting an answer to this question as I type. If they offer any kind of payment, that alone would give me enough incentive to cancel this additional policy and put that $55 monthly payment towards retirement instead.
So here’s my quandry: Do I continue paying disability insurance with the underlying notion that someday I might become too injured or too sick to work – at least before the pension plan’s retirement age of 55 (that’s still 17 years from now)? Is such a low monthly disability payment worth it? Or is this plan worth it’s $660 annual premium?
I reread my policy and realized that that are some exclusions and limitations to the plan; for instance in most cases I would only be paid the $1,500 monthly amount for a period of 6-months, which totals $9,000. If I keep paying my policy for the next 13 years, I will have paid this much in premium payments. However, if I instead invest this monthly amount into my current savings account, at the end of 14 years, I will have saved $9,982 at a measly interest rate of 1.09% (the current savings rate).
If I instead invest this amount into a 403(b), at an annual rate of return of 4% I will have $12, 943 after 14 years. This might be a better option that paying towards a policy I may never need.
What do you think? Should I continue paying on this policy just in case I become ill or disabled? Or, should I instead invest it in my future?
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This is a hard question. I haven’t looked into disability insurance in a while (as it’s a benefit my husband gets free), but this doesn’t seem like a great deal. It expires at a pretty young age, and has a low cap. There’s always the worry that they won’t pay out or will drag their feet if you do need it. I would say it depends on how much money $9K is to you. If you could access this money pretty easily right now, it probably isn’t worth it. If $9K would really help a lot if you were disabled tomorrow, then I would keep the insurance until you have saved the $9K.
.-= Jennifer Barry´s last blog ..A Visit to the Future- Singularity University- Part 1 =-.
I think you should probably continue to pay. You never know, and better safe than broke.
Don’t risk being uninsured!! Just did my open enrollment, and wrote all about it. So important!
.-= Financial Samurai´s last blog ..Open Enrollment- You Might Die An Expensive Death So Sign-up Now =-.
Statistics show that 1 out of 3 people are more than likely to get injured/disabled while employed. If you have established ample emergency fund,you may be able to get away with not having a disability insurance. Your emergency fund would cover your monthly expenses for the six months coverage. So, it is either you get the insurance or you become self-insured.
.-= Ken @Spruce Up Your Finances´s last blog ..Costco Membership =-.
@Jennifer Barry – I think you have a point there; if I have the $9k (which I don’t quite yet), then I could forgo this policy. I think my plan is to save up at least this amount (or more) then ditch the policy.
@Financial Samurai – Then I probably should have gone for the big whopper of disability – for about $200 a month I could be covered for just about anything and the monthly payouts are a lot more!
Disability insurance is an important part of risk management. BUT, you want a policy that doesn’t stop until an older age, like 65 or 66, and provides higher and longer benefits.
You might shop around and see what other coverage you can get that provides some genuine protection. You can often save money by having the wait period be longer, i.e. you don’t get paid until you’ve been disabled for 6 months. This lowers the premium, and means you’re only paying for serious or LT disability. Most people can self-insure for 6 months. Here’s a true story about how disability insurance saved one woman’s family. http://thesilverpurse.com/Insurance
Private disability insurance means just that – private. Insurance companies do everything they can to avoid paying claims. Find a part-time job that pays into Social Security. They may have an 80% denial rate but that, believe it or not, is far better than prvate disability. When I became permanently and totally disabled with multiple sclerosis, Social Security not only approved my claim, they expedited it. My private disability insurance took one year to pay and then stopped at 18 months worth of benefits on a policy supposedly providing 5 years’ benefits.
@Candace – Thank you for sharing your story. I’m sorry to hear about your MS, but it’s good to know that Social Security kicked in quickly. And it’s appalling to know that your private insurance took so long and then had such a lousy pay-out. I know that with my private plan, it stops paying after 6-months, so your idea of getting a part-time job that pays Social Security is a good idea. I might be able to do that next summer when I’m out of school for summer recess.
@The Silver Purse – Thanks for sharing that link. I read that story and agree that purchasing insurance at an early age was a very smart move. I do think that I need to investigate a few alternative options and make sure that the policy I currently have is the best one for the price.
If you have enough money saved that you could live without your income if you couldn’t work, then don’t pay for insurance. But calculating how much you would pay into it in the time you have remaining in the work force isn’t a good number, in my opinion, because it assumes you’re not going to have a problem (or you’ll have it at the end of your time of employment).
Disability in my school district is 6 months. I knew nothing about it (I’m pretty sure I didn’t even know if we had it) until I was diagnosed with cancer. At 31.
Yeah, it might turn out to be a waste of money, but wouldn’t that be excellent? It means you didn’t get severely injured or sick…
But if you have savings, then take your $660/month and dump that into savings, too, and you would be fine…
.-= Heather´s last blog ..change inspires change =-.