How to determine if you need private disability insurance

On Behalf of | Feb 21, 2024 | ERISA Disability Benefits

Determining whether you need private disability insurance involves assessing your current financial situation, your employment circumstances and the adequacy of any existing coverage you may have. 

Disability insurance is designed to replace a portion of your income if you become unable to work due to illness or injury. It’s an important safety net that can help you meet your financial obligations if you develop significant health challenges. 

Assess your current financial responsibilities

Start by evaluating your financial obligations. Consider your monthly expenses, including mortgage or rent, utilities, groceries, car payments and any debts such as student loans or credit cards. If you have dependents, factor in their needs, including education and healthcare costs. Calculate how long you could meet these obligations without your regular income. If your savings would not sustain you and your family for an extended period, you may want to invest in private disability insurance so it can provide necessary financial support if something goes wrong. 

Consider your employment situation

If you’re self-employed or your employer doesn’t offer group disability coverage, obtaining a private policy may be the only way to secure this safety net. Even if you do have employer-sponsored disability insurance, it’s important to understand your coverage details. Oftentimes, employer-provided benefits may only cover a fraction of your income or be available only for a limited duration. A private disability insurance policy can potentially supplement this coverage if you need more than you have right now. 

Review your savings and other income sources

Examine your savings, investments and any other potential sources of income you could rely on during a period of disability. While it’s ideal to have an emergency fund in place, relying solely on savings can quickly deplete your financial resources, especially if you’re faced with a long-term disability. Additionally, government benefits like Social Security Disability Insurance (SSDI) can be challenging to qualify for and may not provide adequate income replacement.

Moving forward

There are two main types of disability insurance: short-term and long-term. Short-term policies typically cover disabilities lasting a few months, while long-term policies can provide benefits for several years or until retirement age, depending on a policy’s terms. Consider the nature of your job, your health and your financial reserves to decide which type of coverage best suits your needs.

Once you have determined whether you need private coverage – and what kind of coverage you need – you can make informed decisions about securing that coverage. Make sure to review the terms of a policy carefully before committing to a policy. There is too much at stake to be unsure of what kind of coverage you’ll be able to rely on if you end up needing it.