While most people understand the need for life insurance, the need for disability income insurance is less widely understood, probably due to several misconceptions:
Misconception: Your odds of a long-term disability are small.
Reality: At all age groups, the odds of a disability are higher than the odds of death. Every year, 12% of U.S. adults incur a long-term disability. One of every seven workers will have a long-term disability lasting five years or longer (Source: Money Central, 2004).
Misconception: You don't have to worry about a disability because you work in a safe profession.
Reality: Accidents outside of work and lingering diseases are estimated to cause 60% of disabilities (Source: National Safety Council, 2004).
Misconception: Social Security will pay disability benefits.
Reality: The criteria for Social Security benefits are very strict - your disability must be so severe you are unable to engage in any substantial gainful activity and the disability must be expected to last at least one year or result in death. Approximately 60% of claims are denied (Source: Gale Group, 2004).
Misconception: You have sufficient disability coverage at work.
Reality: Many employers only provide short-term disability coverage, typically lasting four to six months. Even if you have long-term coverage, make sure the benefits are adequate. When assessing benefits, keep in mind you must pay income taxes on any benefits paid by your employer. If you pay the premiums, the benefits are income tax free.
Misconception: You won't need much income during a disability, because work-related expenses and taxes would decrease.
Reality: While some expenses are likely to decrease, others, such as medical and rehabilitation expenses, are likely to increase.
Misconception: You can always purchase disability income insurance later.
Reality: Once you are disabled, you won't be able to purchase insurance. You could also develop a health problem that will prevent you from obtaining this insurance. Disability income insurance becomes more expensive as you grow older.