Are you carrying long term disability insurance?

You should be.  Assuming that you actually need your income to make ends meet–or will need your income at some point in the future–you should have long-term disability insurance.  Disability insurance will replace up to 80% of your income if you’re incapicitated and unable to work for an extended period.

Although people tout its virtues and put it on their must-have lists of insurance products, a startling number of people don’t maintain coverage.  That’s a massive blunder.

Let’s look at a handful of reasons why you should be carrying a good long-term disability insurance policy.

Government policies are a joke. The Social Security Disability Insurance program is not going to take care of your needs.  First, it can take an insanely long time to secure an approval.  I’ve personally witnessed the process taking well over two years from a claim’s opening to successful resolution.  Second, the benefit levels are inadequate.  The caps are set very, very low.  The money might be handy, but it certainly isn’t close to an income replacement.  Third, the benefits are very restrictive.  Although requirements shift with age and work history, they’re always fairly strict.  If you’re capable of making money and decide to try your hand in the labor force in any serious capacity, you can expect to screw up your SSDI eligibility.

You might actually need it. The numbers are staggering.  A twenty year old worker has a 30% chance of becoming disabled prior to age 65.  It’s shocking how many people find themselves unable to work for an extended period due to an accident or medical condition.  You might feel bulletproof today, but there are millions of people out there who’d be happy to remind you that circumstances can change dramatically overnight.  You’re fairly likely to need disability insurance before retirement.  Hopefully, of course, you won’t need it.  However, the chance is high enough to justify the insurance expenditure.

Income shortfalls create serious nastiness. When someone loses the capacity to continue his or her job, and doesn’t have a way to replace the income for the duration of their limitation, all hell breaks lose.  Foreclosures and mortgage delinquencies often arise after illness makes it impossible for someone to work.  Credit cards get maxxed and/or remain unpaid as the income gap continues for months.  Most of us simply aren’t equipped to deal with a substantial period during which we aren’t cashing a regular paycheck.  The best hedge against the disasters that can emerge with illness or accident?  Long-term disability insurance.

Don’t just take my word for it.  Ask Stephen Pollon.  Yes, that Stephen Pollon.  The former Senior VP at Westminister Bank and the best-selling personal finance author is another strong proponent for long-term disability insurance.  Check out this excerpt from an interview with BankRate’s Jay McDonald:

Most people view insurance strictly as an expenditure. But you’re a big proponent of insurance, right?

Yes, I am a proponent of insurance, but special products. For example, for most people, their most important financial possession is their stream of income, meaning their job. Now wouldn’t it be nice if there was insurance to cover that? And there is — disability insurance. Disability insurance saved my life. When I was 48, I came down with tuberculosis and the insurance company started delivering to me $3,000 a month, which was a lot of money then, and it came tax-free…

If you do your homework on this one, you’re bound to agree with the idea that long-term disability insurance makes sense.  There’s no question we should all have it.  The only real issues involve how to get the best products at the best prices.  We’ll look into that tomorrow!