A reminder that the pandemic has brought out is that illness can progress to long-term disability that can strike both old and young.
But a large portion of Americans are not financially prepared for this not-too-rare outcome, leaving their families vulnerable.
Nearly half of Americans said their family would suffer financial hardship in less than six months if the main earner became ill or injured, according to a recent LIMRA and Life Happens studya non-profit organization that educates consumers about life, disabilityand long term care insurance.
According to the study, one in 10 people would experience financial hardship within a week of losing a job due to a disability, with millennials, Hispanics and those earning less than $50,000 being most at risk. The results resonate even more as Disability Insurance Awareness Month draws to a close.
“Your greatest asset is your income. Your paycheck is worth more than your car and house, so why not insure it? Faisa Stafford, CEO and president of Life Happens, told Yahoo Money. “Disability insurance is insurance for your income if you are sick or injured.”
The risk of disability is far more common than many Americans realize.
About 90% of disabilities are caused by illness, according to the Disability Awareness Counciland more than a quarter of 20-year-olds will become disabled before they retire, according to the Social Security Administration.
“At 32, I hit my head on the bottom of a lake in a water-skiing accident,” John Nichols, president of the Disability Resource Group, told Yahoo Money. “I woke up quadriplegic and it took six years from the date of my accident to return to work proactively and full-time – but still disabled.”
Disability insurance allows injured or ill people to fully recover without worrying about how bills will be paid. Because the bills don’t stop because of a disability. For example, 40% of seizures are due to a disability, according to Stafford.
Otherwise, many rely on savings, family or retirement accounts to pay the bills in the event of disability. The family may or may not be able to help. Savings may not be enough if your disability lasts longer than three months.
“Health insurance replenished me for basic daily activities, but it didn’t replenished me to perform the job,” Nichols said. “It was disability insurance that gave me control of my recovery and the funds to live in my own home and support myself instead of moving in with my parents and worrying about paying the bills.”
Disability insurance replaces a certain percentage of your income for a specified period if you cannot work due to injury or illness. Hedging is short-term or long-term.
Although many employers offer group short-term disability coverage for full-time employees, it’s a good idea to supplement this coverage with long-term disability insurance, as short-term typically lasts 13 to 26 weeks depending on your employer.
For some, that means going back to work without fully recovering because they need a paycheck. That’s where long-term disability insurance helps, but two-thirds of private-sector workers don’t have that coverage, according to the SSA. And social security is usually not enough on its own.
“Social Security Disability Insurance (SSDI) is modest, just above the poverty line and hard to get,” Stafford said. “Not having a backup can destroy a family.”
If you are a gig worker or part-time worker who is ineligible for short-term disability with your employer, you must obtain individual disability coverage, similar to an individual life insurance policy.
“It’s about feeling comfortable and financially secure,” Stafford asked. “If you don’t have disability insurance, where will the money come from to pay your bills?
Ronda is a senior personal finance reporter for Yahoo Money and an attorney with experience in law, insurance, education and government. Follow her on Twitter @writesronda.