Over the last month, I have been furiously hunting for an affordable life insurance policy. This is ongoing and I’m waiting for the latest accurate quote after getting a blood test. So the life insurance policy is on the way to completion and it’s only a matter of time. While researching life insurance, I thought more about insurance in general and now I’m wondering – Do I need long term disability insurance?
I had long and short term disability insurance at my old job, but now that I’m self employed, I don’t have any coverage. The disability insurance policies were a necessity for income protection because we depended on that income when I was working a corporate job. When I transitioned to self employment, I didn’t think I really needed disability insurance because I didn’t make much money.
Government Safety Net
The Social Security and Supplemental Security Income disability programs provide assistance to people with disabilities in the United States, but the payment only averages about $13,000 per year. It is also quite difficult to qualify for the programs and usually takes at least 3-5 months. The benefit is not much, but it would be helpful if I ever became disabled.
When I first became self employed, I didn’t even make $13,000 per year so I figured the government safety net would be enough if we ever need it. Of course, I’d rather be healthy and make money on my own than depending on the programs.
It was easy to put off disability insurance when I didn’t make much money, but my online income is slowly increasing (sign up on our email list to get the details in our monthly newsletter.) This is great, but now I have to consider income replacement again.
When is the right time to buy?
Most long term disability policies will replace about 60% of your income. However, if you pay the entire premium, then the benefit will be tax-free. That’s a nice benefit for self employed people like me. So here is a chance to apply that Algebra class we all loved. Can you still do algebra?
60% of X = $13,000
So X is $21,667 here. Taking taxes into account, I’d need to make around $25,000 to receive $13,000 in benefits. Anyway, I’m going to apply fuzzy math here and figure that I should make around $40,000 per year before long term disability insurance is worth it.
It’s also more difficult for self employed people to get long term disability coverage. It’s can be hard to verify the income of a self employed blogger so most insurance companies require at least 3 years of tax records. I have been 100% self employed for only one year so I’d probably need a couple more years under my belt first.
Conclusion – wait a bit
It looks like I need to ramp up the self employment income over the next two years to make long term disability insurance worth it. At this point, I’m not making enough money to justify purchasing a long term disability policy. It will also be much easier in 2 years when I have a more solid financial record to provide the insurance company. For now, I’ll just concentrate on completing my life insurance policy and put off disability insurance.
Do you have long term disability coverage? Employers who provide such coverage are getting fewer in number so you probably need to check your benefit. If your family is depending on your income, then you need to carefully consider disability insurance.
photo credit: jimbowen0306