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Part of being young is assuming you're invincible. Part of growing older is learning that you're not.
I learned this lesson after a prolonged health incident in early 2019, when I was forced to take several extended breaks from work. For the first time, I considered what would happen if I became permanently or temporarily disabled.
That's why in the fall of 2019, I decided to purchase a disability insurance plan.
Why I bought disability insurance
I've written about disability insurance for years, but never really considered getting a plan myself. I figured that was for people with chronic health issues or manual laborers, not someone who works on a computer. Besides gaining too much weight by sitting at my desk, I didn't see how a work-related disability could affect me.
Then I had three major surgeries over the course of 2019. Although the operations went smoothly, they made me realize how precarious our health really is. If even one of the operations had gone poorly, my ability to work would have been severely diminished.
When I looked into the likelihood of becoming disabled, I was even more convinced that I needed a policy. According to the Social Security Administration, one in four 20 year olds will become disabled for a year or more at some point before retirement.
Unfortunately, relying on federal disability benefits isn't a great option. It can take between three to five months to get a decision after applying for benefits, and the average payout is only $1,197 a month. That would barely cover my mortgage.
How I chose my disability insurance policy
There are two types of disability insurance, short-term and long-term. A short-term policy generally kicks in about a week or so after the person becomes disabled. Benefits last between three and six months, even if the person hasn't fully healed.
Short-term policies usually pay between 60% and 70% of a person's income, while long-term policies pay between 40 and 60% on average. If you need a bigger policy, you can ask for one when applying for coverage.
Short-term policies are generally very expensive because it's more common for someone to acquire a short-term disability than a long-term one. I have an emergency fund to cover expenses temporarily, so I opted for a long-term plan.
I bought long-term disability insurance with a 90-day waiting period. That means if I become disabled, I'll have to wait 90 days for the benefits to kick in. Thankfully, I can rely on my emergency fund to pay the bills until that time.
The policy costs $21.59 a month and will pay out $3,000 a month in benefits. This will cover all the major essentials, including my mortgage, car payment, groceries, utilities, car insurance, and gas.
The plan will pay that amount every month until I'm no longer disabled or until I turn 65, whichever comes first. The reasoning is that at 65, I'll be able to retire and live off my own savings and Social Security benefits.
Find the right disability insurance policy today with help from Policygenius »
Choosing an insurance provider
I found disability coverage through the Freelancers Union, a group of freelancers based in New York. Like most unions, they're able to secure lower rates on insurance policies with a group discount.
If you have a traditional job, your employer may offer discounted disability insurance through a third party. You'd be responsible for paying the premiums yourself, but it's cheaper than finding an individual policy.
Some companies pay for disability coverage as an employee benefit. Before buying extra coverage, ask your human resources department if your company offers a policy.
There are five states that require employers to provide short-term disability coverage, also known as temporary disability insurance. This is short-term coverage that will only pay out for a certain length of time, usually around 26 weeks.
This type of coverage isn't the same as long-term coverage, but it does provide some peace of mind.
What is self-insuring?
Self-insuring is when a person saves enough cash to cover any potential expenses instead of buying insurance.
To self-insure against disability, you would need enough money to cover your expenses for several years. These funds would need to be liquid or easily accessible, like in a savings account.
For most Americans, self-insuring is difficult because it requires a large amount of money. If you wanted to self-insure against a year of not being able to work, you'd have to save a year's worth of expenses.
For me, it was much easier to buy a disability policy and pay a small monthly fee. Since most Americans can't afford a $400 emergency, I'll bet that it's easier for most people to pay $20 a month for disability coverage than it is to self-insure.
Because the money you save to self-insure has to be liquid, it can't be invested in the stock market. That means as each year passes, inflation will make your money worth less than it was the year before.
If you're independently wealthy, you can probably afford to self-insure. For the rest of us, disability insurance is worth the cost.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
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