Works If You Can’t

Dennis Ho

BE HONEST: WHEN WAS the last time you thought about disability insurance? As co-founder of a website that sells insurance, it’s a topic I think about every day, but I realize most folks have other things on their mind. Yet becoming disabled is one of the biggest financial risks that working people face.

Disability can result from accidents or sickness and can impact people of all ages. According to the Social Security Administration, a 20-year-old entering the workforce has a one-in-four chance of becoming disabled for a year or more before retirement. That’s four times the probability of death, plus the financial consequences are far worse. After all, you’re still alive—which means you still have living expenses. When you become disabled, you not only lose your earning potential, but also you likely face steep medical and other bills.

Long-term disability insurance helps protect workers from this risk. But in the U.S., only a third of workers have coverage. The good news is, if you work at a larger company or have an office job, you’re much more likely to have coverage. The bad news is, your coverage may still not be enough. Most group coverage—that is, coverage you get through work—has percentage and dollar caps on benefits.

For instance, if you become disabled, you might receive 60% of your income up to a maximum $5,000 per month. Let’s say you make more than $100,000 per year. The $5,000 per month cap means you’re protecting less than 60% of your income, plus your group disability benefits would be taxable. If you aren’t careful, you can quickly get into a situation where disability benefits are not enough to cover your living expenses, let alone medical bills, retirement savings, college savings and other important financial goals.

Think Social Security’s disability program will protect you? Unfortunately, that’s unlikely. Social Security requires you not only to have a disability that’s expected to last more than a year, but also the disability must prevent you from all work. If you’re able to work just a few hours a week or you’re expected to recover within 12 months, you don’t qualify. In addition, benefits are limited: $1,170 was the average monthly benefit paid in 2017. Finally, even if you do qualify, it could take a year or more to get approved. More than half of applicants get denied.

So how do you protect yourself? An individual disability policy can help. But you might be surprised that—even though my site sells individual policies—I recommend them as a last resort, because individual policies are relatively expensive and they’re one of the more complicated insurance products. They also take six to eight weeks to get, because insurers must underwrite both your health and financial situation. Before you go down that route, consider the following four steps:

  • Understand your work coverage. How is disability defined? What benefits do you receive and for how long? If you were to become disabled, would the benefits be enough to live on, especially after figuring in taxes? If your work coverage is enough, you probably don’t need to look elsewhere.
  • Explore buying additional group coverage through work. Some companies pay for 60% income coverage but allow employees to pay a small amount to bump that up to 66.7% or 70%. If this is available, it’s a great option, because it’s relatively affordable and usually doesn’t require medical underwriting.
  • Explore buying individual coverage through work. Some employers negotiate deals with insurers, so employees can purchase individual disability policies at a discount. Because of group buying power and the fact that insurers can aggregate a potentially large pool of customers, these policies will often be cheaper than buying a policy on your own. In some cases, the insurer even simplifies the underwriting process, so no medical exams are required. The great part about these policies is you can take them with you if you change employers, which is not the case with your group coverage.
  • Explore affinity group discounts. If you belong to an affinity group—such as an association for lawyers or accountants—see if your group offers disability insurance at a discount. If not, ask if the group is open to adding a discount program. Many insurers will offer a discount of 5% to 15% on individual disability insurance if you can get the affinity group on the insurance company’s “approved” list. The main requirement is that the affinity group needs a couple of years of history and cannot be set up solely for the purpose of buying insurance. You’ll likely need someone from the affinity group to provide information to the insurer, but it should be a simple process.

Assuming you don’t have any long-term disability insurance coverage, or you have insufficient coverage and can’t get more from the above sources, you likely need an individual policy. In a future post, I’ll cover the ins and outs of how these policies work and how to select the right one for you.

Dennis Ho is a life actuary and chief executive of Saturday Insurance, a digital insurance advisor that helps people shop for income annuities, long-term-care insurance and other insurance products. Prior to co-founding Saturday, Dennis spent 20 years in the insurance industry in a variety of actuarial, finance and business roles. His previous article was Bet Your Life. Dennis can be reached at or via LinkedIn.

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3 years ago

Thanks Dennis, I really appreciate your posts. I am a bit of a finance nerd (former CPA) so I think about all kinds of insurance from time to time, especially cost-vs-benefit.

I have an individual Mass Mutual LTD policy I bought in 1997 in my late 30’s, through an agent. I increased the policy amount by $1,000/mo a number of times over the years, until in 2012 they turned me down for any further increase. The lean 37 year old marathon runner they initially insured had become a husky 52 year old with a much higher BMI, type 2 diabetes and elevated blood pressure (though these are well controlled w/ low dosage meds and test in the normal range as a result).

The agent always assured me Mass Mutual was a better carrier than most for LTD policies, with more friendly terms for insureds (more lenient definition of “disable”, and in many other ways I no longer recall). I’d be very interested if you have any thoughts on Mass Mutual vs other insurers.

Because it’s a policy holder-owned company I now get annual “dividends” which lower my annual premium by ~ 10%, which began on my 20th year of coverage. Today at age 59 I’m paying $4,200/ year (net of dividends) for a policy which will pay me $8,000/mo (tax free) if I become even partially disabled (allegedly with a lenient definition of partially disabled).

I expect and hope I will be able to save that $4,200/ year after only 2 or 3 more premium payments, by canceling the policy when I retire – having never collected any payments. If that’s the case, and based just on the few facts I’ve provided, would you have advised me any differently 22 years ago when I bought this policy?

Dennis Ho
Dennis Ho
3 years ago
Reply to  Coffee4matt

Hi @disqus_CQ2dvN9nHh:disqus – I’m sorry for the delayed response – I somehow missed this note. I believe you made a great choice with the disability policy and it did it’s job.

Assuming you relied on your work income at the time you bought this policy and throughout the past 20 years, then I am pretty certain I would have advised you to purchase and keep the disability policy as well. Whether Mass Mutual was the absolute best policy for you at the time or something else was better is impossible to tell, but I can say Mass Mutual is a very strong company and recently was the very best choice for a good friend seeking disability coverage. Incidentally, he is 41, so a very similar age to when you bought the policy.

Congratulations on making it through your career without a claim. I have a disability insurance policy as well and this is the exact scenario I hope to be in when I get to retirement age.

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