You often hear of millennials having the “invincibility complex.” They prioritize other aspects of their life over their health because they don’t anticipate dealing with an injury or illness at such a young age. However, the odds of being unable to work because of sickness or accidental injury are greater than the odds of a premature death. If you’re a millennial, ask yourself this: Would I feel comfortable with my insurance choices if I were unable to get up tomorrow due to a severe injury or illness?
If the answer is no, it’s time to start thinking. While many employers provide group short and long term disability coverage as a benefit, that’s not always enough. In the event that you don’t get that coverage, you might also need to purchase an individual disability income policy. Even if you do receive the benefit, sometimes it isn’t enough; and an individual policy is needed for additional coverage.
So, what should millennials consider when looking into disability insurance?
- Working is your best asset. When you think about it, your best asset when you’re young is your potential to earn money. Think about it this way; if you’re a 33 year old making $150,000 a year, your gross income would be around $5.2 million throughout the course of your career. If that money can’t be earned due to a disability, your financial situation could change drastically. Without income, it’s nearly impossible to spend and save. So to all our millennials out there — before you do anything else, remind yourself that working is your greatest asset!
- Consider how much to purchase. Insurance companies typically limit the amount of coverage that replaces your income. Most policies cover around 66% of gross wages. When choosing the right benefit amount, the process is pretty straightforward. The amount would be any portion of your current paycheck, including commissions and bonus, not covered by your employer’s benefit plan. If you are under an employee sponsored plan, make sure you know exactly what percentage of your earnings is covered. You’ll also want to Check whether or not the income you receive from your disability income insurance policy is taxable. Once you’ve researched these few items, then you can determine if you need to “fill the gap” with an additional individual policy. If you don’t have a plan with your employer, then your individual insurance policy should cover as much of your income as possible.
- Know what the word disability entails. If you weren’t familiar already, disability has a few definitions, including own-occupation, any-occupation, and other classifications. Knowing what each of these means and what falls under them is critical when researching a disability policy. For example, the “standard” in disability insurance is called the “own occupation – noncancellable.” This essentially means that as long as you’re paying your premiums, the policy can’t be increased and will remain in effect. You’ll be considered disabled if you’re unable to do all of your daily tasks at your job. So before you jump on a plan, make sure you know where your disability is categorized under the SSA, and do your research on disability classifications.
- Choosing an elimination period. An elimination period in an insurance policy is the amount of time you have to wait before receiving income from the plan. Choosing the term of this elimination period boils down to two issues: the amount of days you are able to cover from your personal resources, and cost. The longer the waiting period, the lower the premium. You’ll want to purchase a plan that pays benefits for as long a period as possible.
We hope these tips have helped you rethink your insurance strategy as you move forward in your career! Still have questions? We’d be happy to help. Check out our blog for additional resources, or contact us online.