Millennials and Gen Zers are every bit as subject to injury and chronic debilitating disease as their older co-workers. But they are much more likely to be going without disability insurance.
The typical 20-something needs disability insurance much more than they need life insurance. Young people are more likely to own a life policy than disability coverage, though, for a variety of reasons.
Disability income insurance steps in when a worker can no longer earn a living because of an injury or illness. It is designed to replace a significant fraction of a person's paycheck — usually 50 to 65% of it — so that the individual can take care of basic necessities until they recover and can rejoin the workforce.
Fact: There is a one in three chance that any given 20-year-old will become disabled prior to reaching retirement age. But four in 10 workers have no disability insurance coverage of any kind, according to information from the Metropolitan Life Insurance Company.
A host of diseases regularly strike people in their 20s and they are more apt to be involved in activities that can result in accidents and injuries.
Younger workers are also more likely to be living paycheck to paycheck. A sudden disability that forces such a person out of the workforce is a devastating event and can suddenly turn into a financial disaster.
Health insurance can help pay their doctor bills, but neither health insurance nor long-term care insurance can pay rent or put food on the table.
On the other hand, disability insurance provides money to live on, including paying rent, buying groceries and funding transportation to treatments.
Short-term and long-term policies
It is not unusual for workers to receive at least short-term disability coverage at work. This covers a portion of the disabled individual's income for anywhere from a month to a year — after an exclusion period that typically falls within the employer's paid time off policy.
Long-term disability coverage kicks in when the disability disrupts the worker's ability to earn a living after the short-term policy expires — often after 30, 60 or 90 days.
Definitions matter
When it comes to disability insurance, the cheapest policy isn't always the best deal. Rather, the best deal is the policy that is most likely to pay the claims you are most likely to need. For this reason, it's important to consider more than just premium when selecting a disability policy.
The definition of disability is key: an "own occupation" policy will pay benefits if the disability prevents the individual from working in their own profession. The term "any occupation" indicates that the policy will only pay claims if the insured cannot work any reasonable job.
The own-occupation option is the policy that is more likely to pay a claim if the insured becomes disabled. Naturally, all other things being equal, this type of policy is somewhat more expensive.
On the other hand, younger people may have more luck in adapting to another profession in the event of a disability, so an any-occupation policy may make more sense for younger workers.
Getting coverage
Many young workers get at least some kind of disability coverage through their workplace, but it is limited. People who are independent contractors or business owners will need to get their own coverage.
Be prepared to answer medical questions, and in some cases, pass a medical exam. Also, be prepared to document several years' worth of income — generally by showing your tax returns.
Disability income insurance can be more difficult to obtain in the individual market than other lines of insurance. It is important to obtain coverage when you are still healthy. If you wait for symptoms to strike, it is usually too late to get disability coverage from any source.
Give us a call and we can review your options.