Wednesday, March 28, 2018

DI vs Med BK

That is to say, Disability Insurance versus Medical Bankruptcy.

The other day, we discussed the myth of widespread medical bankruptcies:

"Study: Medical Expenses Cause Close to 4% of Personal Bankruptcies — not 60%"

In the comments, it was pointed out that the most prevalent cause of medical-related financial troubles wasn't the cost of care itself, but the lack of income while one was receiving - and then recovering from - that care. Co-blogger Patrick took it a step further by explaining that this is where a disability income insurance plan could have saved the day.

Since DI is one of the most complicated - and misunderstood - products in our quiver, I'm going to take this opportunity to reprise a post from my old gig to explain the basics of this type of insurance:

Disability, or Paycheck, insurance helps pay the bills if one is out of work due to an injury or illness. Although many employers offer it as an optional benefit, it's also available to those without access to an employer-based plan.

Of all the various types of insurance products we sell, disability income insurance is one of the two or three most complicated. That's because there are so many variables involved in identifying the appropriate product, determining how much one can and should buy, and how one's avocation affects one's rate.

What Are The Basics?

There are three main components to disability insurance: how much, how long, and when. How much of one's income, and therefore how much disability insurance one can buy, is a function primarily of one's job and one's wages.

What’s A Rate Class?

So-called "white collar" professions, such as doctors and accountants, will generally be eligible for higher benefit levels because they make more and their work environment is generally not very dangerous.

People in, for example, retail sales and management, won't generally qualify for as much of a benefit due to the nature of their work and their income level.

Those who toil in the blue collar arena, such as a taxi driver or mechanic, may have trouble finding coverage at all, and when they do, can expect somewhat lower benefit levels due to their job requirements.

What Are Waiting Periods?

This is how long one must wait from the time of claim until the time one actually receives a check. Think of it as a deductible, such as when you wreck your car or hail damages your roof. Typically, this can be anywhere from a month to a year or more; the longer the time that one is willing to wait, or self-insure, the lower one's rate will be.

What is A Benefit Period?

Once one has satisfied the waiting period, the insurer will begin sending checks, and will continue to do so as long as one remains disabled, up to a previously agreed to cut-off date. This can be as short as a year, or as long as until one reaches retirement age.

What About Social Security?

Most working people have access to at least some paycheck insurance through the Social Security Disability benefit (SSDI). This is administered by the Social Security Administration, and is based on one's income, how long one's been in the workforce, and the nature of the disability:

As a result, many people who think they'll be eligible for disability benefits from Social Security are disappointed to find out that they aren't, or that it will take a lot of time and effort to receive any financial assistance.


Even though a portion of your paycheck goes to pay into the Social Security Disability system, it may not be wise to rely on SSDI in case of a major illness or injury. Individual disability insurance can help provide peace of mind, and money for food and shelter, and can be configured to meet your own specific needs.
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