Over the next two weeks, I have to decide what kind of benefits I want to pay for at my job.
I need to decide what kind of health insurance I want (and I use my Health Insurance Made Easy spreadsheet), as well as dental and vision insurance. Do I want to contribute to my Health Savings Account? And finally, what about long term disability insurance?
If you are unable to work due to a health issue, long term disability insurance will pay you while you are incapacitated. Each insurance plan has its own rules, but it’s usually a percentage of your income (mine is 60%) for either 2 years, 5 years, or until you hit retirement age.
This is an incredible safety net and I strongly recommend anyone consider buying this insurance. When you consider the fact that the 60% of your original income is tax free, it’s actually pretty darn close to 100%. That kind of money is going to be a lifesaver when you are disabled and cannot earn money. In fact, I believe that people in certain circumstances should pay for long term disability insurance before they save money for retirement.
Specifically, a person with a family to support and a physically intensive job is a prime candidate. A young office worker like me? Forget about it!
You Have to Be REALLY Disabled to Not Work an Office Job
I currently have long term disability insurance because I wanted a nice safety net. My personal finance professor in college told me it’s a smart thing to get, so I signed up. But today I tried to think about a scenario where I could actually claim the benefit.
You have to understand, I work an office job. In fact, I can work from home in my underwear and be just as effective as I am at my desk in the office. The three most important physical characteristics I need to complete my job are a functioning brain, vision to see the computer screen, and fingers to type with.
I’ve tried to come up with theoretical illnesses or injuries that would allow me to claim benefits from long term disability insurance, and here’s all I could come up with:
- Getting stabbed in both eyes with a pencil (or any other way I would lose my vision, most likely glaucoma)
- Getting a terminal, chronic illness that requires me to be doped up all the time to deal with pain (hence, lack of brain function)
- Literally losing my mind (at which point, does a schizophrenic or incoherent person care about money?)
- Having both my arms amputated due to an aggressive case of frostbite (or any other reason to lose the ability to type)
That’s pretty much it. A bad back wouldn’t keep me from working this job. Neither would a broken hip. I could literally have my legs amputated and not qualify for long term disability due to the nature of my job.
I could even have a lot of different types of cancer and not qualify for this benefit. The list could go on. And even losing the ability to type might not qualify me for benefits because it could be circumvented with speech to text software.
There just aren’t many scenarios, even far fetched ones, where I would need this insurance.
Is the Cost Worth the Benefit?
Last year I signed up for long term disability insurance because I wanted the benefit. My annual premium for this insurance costs $379.86. I thought that money was worth it to get 60% of my pay if I become disabled.
The problem is, I didn’t go so far to conceptualize what “disabled” means for an office worker. When I think about that, this insurance becomes a big waste of money.
Add on the fact that my new premium would be $520.00 for 2012, and there’s no way I’m buying that crap!
If your job gives you the ability to purchase long term disability insurance, it might be a great idea. If your work involves manual labor, you almost certainly want it.
But if your job is a cushy office gig that you could do even after you lose your legs, you probably don’t need it.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I completely agree… save your money. Even paralyzed engineers can work with special tools.
Regarding health benefits… I recently had a revelation as well… why am I NOT in the High Deductible/HSA plan at work?
I used to blow that off in favor of the traditional plan, thinking that with the HD plan I would have to pay out of pocket for everything until the deductible is met ($2000!!!). I didn’t realize that all preventative appts. are free. Medical procedures and treatments are really the only things that cost out of pocket. The other benefit is that my company puts $1000 into your HSA each year, and HSAs rollover, are tax free and all contributions to the HSA are before taxes! Reviewing my actual health spending over the last 5 years, I spent virtually nothing!!! I basically left $5000 on the table! One thing I failed to mention is that after the deductible is met, everything is 100% covered.
So, moral of the story, like you, I need to really look into all of my benefits. It still hurts to think I missed out on $5000 🙁
Oh yeah, you missed the boat big time there. That’s a lot of free money down the tube. My company only gives me $500 a year towards my HSA, but I’ve been loving it!
LTD is a tricky thing to consider. I like the analysis you did and showed logical reasoning on why made your decision. For me, 2 things push my decision the other way:
1. I drive a lot, both for work and personal reasons, and all it would take it getting blindsided by a 100 lb girl on her cell phone in a H2 to send that functioning brain piece out the window.
2. My coverage costs $3.25 a month. I think I can sacrifice 1 coffee a month on the off chance that the above or some other far-fetched scenario puts me on IR.
Personally, i think anyone with a family that depends on them should have some amount of LTD and life insurance, but it is up to the individual to figure out what works best for them and their family.
Also, thank for the site. You rock!
For $3.25 a month, I’d be all over it! It’s the $520 annual price tag that I can’t stomach
I choose to get disability for the simple fact that my family depends upon that income and the car accident and brain thing is a good example. If something happened to me, my family is on the street. Just look at the baseball fan that got beat into a coma. Anything can happen so I choose to pay the fee. If you have no family, the equation is totally different.
I’m with CFM here. Also, I’m pretty sure you can claim LTD if both your legs are amputated. When you get older, you’ll have more health issue and a bad back is pretty crummy.
Unless you were taking a bunch of pain meds, I don’t see how missing legs would stop someone from doing my job. Here’s the other thing: I would last about a week on LTD until I was so bored I’d need to find something to do with my time anyway (as long as I had a functioning brain). Even if I couldn’t go back to my old job for some reason, I’d find a new one.
It’s true, all of that stuff could happen. I just think an insurance company is going to do everything they can not to pay a claim, and an office worker doesn’t need much to be able to do his job. It’s not like a construction worker.
I dont sign up for that either, though I do sign up for short term. It was something like 50 cents a week or some crap. I think its great insurance, but with insurance I tend to see that as a free pass to do riskier stuff, like skydive and fight bears.
Short term is free from my work, so I have that. And I agree; I like to wear a pork chop suit and run through junkyards full of nasty dogs. Would never do that without short term disability insurance.
The only insurance I have is for car and personal belongings.
When we buy a house / procreate I guess we’ll need to get income protection insurance, but that’s a long way away.
Do you have to buy health insurance in Australia, or is that free over there?
I’m all in favor of long-term disability insurance! What if I get hit by a bus? Get into a serious car accident? Any of those things could make me lose my little brain … lose my concentration …. get massive headaches … not be able to sit down for long stretches of time …. etc. Sounds horrifying! I’d have enough to deal with without also having to worry about money.
If I’m brain-dead, I don’t think I’d be worrying about anything, right?
I’m not worried about headaches or losing concentration; the young, invincible 26 year old part of me says I could just power through that kind of stuff.
Don’t underestimate the power of debilitating migranes and all that other stuff!
Have you ever tried to work when you have a really bad cold, and you’re super drowsy? It sucks. You can’t get anything done, you’re constantly overlooking obvious things, and after a few hours you realize you haven’t accomplished a single productive task all day, so you may as well go home and lay down.
Now, imagine damaging your brain in a car accident to the point that every day is like that. Yeech. I’d definitely want some protection in case that happened.
That said, I don’t have long-term disability insurance myself … when you’re an entrepreneur you forget these things. But this article is reminding me to look into getting it! 🙂
I don’t get sick. Seriously, like ever.
And when I do get sick, it’s never to the point where it decreases my cognitive functioning. The only reason it makes my job any harder is because I have to stop working every 2.6 minutes to blow my nose.
When one is healthy, it is REALLY tough to imagine what it must be like to become disabled with illness or pain. I’m 27 and I use to work several jobs and volunteer at the same time. I use to be able to push through fatigue, migraines, flus, and even surgery. I would wake up from surgery and pull out my laptop and work. I was so proud of how I just pushed through things and was a non-complainer.
But things changed overnight and I understood the true meaning of being disabled – that no amt of pushing through is sufficient. I got an onslaught of disabling systems and now I am completely disabled. I cannot think clearly and am in constant pain and fatigue that even 40 pills a day barely helps. Typing this out feels like I’m running a marathon.
There are a million reasons of things that could happen to make it difficult and even impossible for you to work. If you got your legs amputated, you could have awful infections and intensive PT that makes it hard to work. You might experience RSD, an extremely painful nerve disorder resulting from an injury to nerves resulting in amputation…so painful that pain drugs won’t help.
When you’re young and healthy and you are able to bounce back from minor things (believe me, regular headaches is one thing….but super severe migraines can disable you) and you haven’t experienced any true health tragedies yourself, it can be difficult to imagine a scenario of why you would need LTD. But I am sure all disabled people also once had difficulty imagining becoming disabled.
So based on my experiences, yes I think it is an absolute must. It’s one of those things that you won’t think you will need until you actually need it.
I absolutely think long term disability insurance is a must for everyone. The risk isn’t worth it. You are correct that, as an office worker, you should have a very low risk of something happening that qualifies you. But that is actually the perfect situation for insurance, it should be cheap. You want insurance for unlikely but very costly events. You don’t want insurance for likely and inexpensive events (paying the middle man just adds to the cost).
I believe, other than health insurance it is the most important insurance. For someone with dependents life insurance can be important too. And auto and homeowners insurance are also important.
In many things I believe you can chose what you want to do and just deal with it. Forgoing health or disability insurance I think is just a bad idea.
http://investing.curiouscatblog.net/2011/04/18/personal-finance-basics-long-term-disability-insurance/
When I would have had gaps in coverage from work, I have purchased disability insurance myself.
I am all in favor of saving money. About the only 2 things I don’t believe in saving money being very important are health and disability insurance. Get high deductible insurance in general (you should insure against small loses). And with disability insurance you can reduce the cost by having the insurance only start after 6 or 12 months (I chose 12).
I have no options with the insurance at my work. It’s either $520 a month for 60% of my income (I couldn’t even find out how many years the benefit lasts) or nothing.
I might look into some private insurance companies to get a cheaper policy if I can find one, but like I said before, I’m really struggling to come up with a realistic scenario where I’d need it.
It might well be that the company options are not good. Unfortunately many HR type functions are not designed for the most benefit to the company but just to minimize cost to the company. If you don’t have enough staff, they can’t take time finding good 401(k) options, insurance… so you are stuck with high expense funds…
Looking elsewhere may be wise.
People don’t like to think about it. But mental health issues are much more common than people think. That can be a situation where office workers can’t work. Another issue is the more you make in many ways the more important disability insurance is. It is true you can suffer real damage and still work in an office. Working at a level that justifies $100,000/year can be more challenging.
Also, don’t forget our broken health care system. If you get a serious medical problem that technically maybe you can work with you may well not be hired by anyone because of the medical problem. This isn’t legal suppose to happen, but because of the broken medical care system it does. Technically your disability insurance isn’t suppose to cover this situation – but it may well (as you cannot find a job)…
There are lots of illnesses that make it difficult to hold down a full time job well. But they are uncommon. And healthy people (including me) can’t really believe they will affect them. I can’t recall the research I did but the changes of becoming disabled for a long period are fairly high for those in the USA in their working careers (from what I remember). Once I decided ok, I just always need to have coverage I kind of forgot the details. It is true the odds are much better for office workers but that is what I am and still the odds didn’t seem worth the risk.
Mental health is one of things that immediately popped into my mind when I was reading this. I work at an employment organization helping individuals recovering from addiction to re-enter the labour force. Around 80% of our clients have a mental health issue but only around 20% were ever diagnosed. If you were to develop a mental illness, money would certainly be on your mind – just as money would be on your mind if you got cancer. Mental illness distorts your idea of reality but it doesn’t make your daily needs such as food and shelter any less important.
At my job, we have had former Superbowl champions, former CEO’s, a prominant politician, an Olympian and many hardworking individuals with lucrative jobs who are reduced to living on income assistance after serious bouts with mental illness and not being able to afford basic necessities (and this is living in Canada where we have public health care). That was actually one of the most surprising thing for me when I started – that so many of our clients were people who did everything right but were blindsided by a stigmatized illness and used drugs and alcohol to cope.
So, the smart assumption is that it could happen to you as well. I think part of your analysis for paying for the Long-Term Disability Insurance is whether or not you could live off income assistance for people with a disability. If you feel that it is high enough when combined with your savings, then it really is not worth the premium.
Meh. You are more likely to need LTC during your lifetime than you are to get into a collision with an uninsured driver, but I bet you have a UM rider on your auto insurance (if you don’t, you are too stupid to be giving financial advice to anybody). Actually, getting run down by a drunk driver may be the reason for needing LTC. The need for LTC does not directly relate to your ability to work — it relates to your ability to do fundamental tasks of daily living, such as dressing yourself, toileting, and feeding yourself. If you live long enough, you will almost certainly need LTC eventually, probably for at least two years. As long as you haven’t lost your cognitive and reasoning abilities, you might still be able to do work even from a nursing home, but you might not be able to make enough to pay for that nursing home. Private nursing homes currently run north of $80,000/yr, and that is going up faster than the general rate of inflation. “Assisted Living” runs a little over half that (how much over depends on how much assistance you need).
Oh, and believe me — you DO NOT want to live in a “medicare facility.”
LTC is fairly inexpensive when you are young, and if you get it when you are young and healthy, you can lock in lower rates over your lifetime. If you don’t have LTC when you discover that you need it, you can no longer get it at all. LTC is probably the only product in the insurance industry besides straight term life that is actually pure insurance.
A good strategy for LTC is to get basic coverage for about 80% the current average cost of a private nursing home, and get the inflation rider. The term should be no more than 4 years of coverage, since if you have been in a nursing home for a couple of years, they can’t dump you once you qualify for medicare/medicaid, and by law, they have to accept whatever medicare/medicaid pays. Then it’s fairly easy to arrange to impoverish yourself to the point that you qualify for government assistant in that 4 years.
Interesting view. You’re a young pup still in the 20s. Not worth it at this point, but is there a turning point where it actually makes sense getting it? Having a family? Reaching a certain age? Great food for thought.
My Mother-in-Law is in a tug of war over a LTD/workman’s comp claim (not entirely sure which)… She’s been a medical transcriptionist for 28 years and now has tendonitis and carpal tunnel to the point that her performance at work is down and she’s had multiple physical therapy treatments. She has been battling her condition for over a year and is out of options. Her doctor finally told her (and her employer) that she is unable to work in her old capacity and should not return to work for at least 6 months. Because she is two years outside of full retirement the hospital system she works for in Mpls is refusing to let her retire early or put her on LTD because she is not completely “disabled”… She is now working IN the hospital greeting patients, etc. (not hard work by any stretch) for her mandatory 40 hours a week but is thankfully maintaining her full rate of pay. LTD insurance does not mean that you will be able to kick back and collect a check even if you can’t do your old job… They might just find some toilets for you to scrub if you lose your mind.