Short Term Disability Insurance As A Stopgap For The True Emergency Fund
My spouse’s employer now offers short term disability insurance as part of his elective benefits package. I’ve heard people say that you are much more likely to be disabled (at least for a short time) in your working career than die, and yet more people have life insurance than disability insurance. Which at least, in our case, is true - we both have life insurance but we don’t have disability insurance.
I looked into the policy and basically, we’d pay $19 a pay period (he gets paid every two weeks) for coverage that if we used it, would provide $500 a week for 26 weeks. So for a little under $500 a year, we’d have 26 weeks of $500 coverage, or $13000 total. Which doesn’t seem too bad, but I started thinking more about it, and realized that we could really provide our own version of short term disability insurance by having $13000 saved on our own.
Which, is a lot, and not very realistic right at this moment. But our long term goal (say, 5 years out from now) is to have about $18000 in our emergency fund. At that point, we’d basically be insuring ourselves as far as short term disability went. Which also leas me to consider if I’ve factored enough different things into the total we decided on for our emergency fund, and I will have to revisit that sometime in the near future. But for now, I’ll keep the $18000 figure, which would more than cover the short term disability potential payout.
But again, that isn’t going to be realistic for at least a couple years, and if my mini medical saga the past four months has taught me nothing else, it has shown me that things can potentially change in a very short time, or even an instant, as far as ability to work is concerned. My spouse’s election period for this coverage is this month, and we’ve decided to elect coverage for him for the next year. Yes, there are many other things I’d like to do with that $500 but at the same time, it is not a lot to pay for a bit of peace of mind. As we save a substantial emergency fund, we’ll revisit the issue of short term disability coverage and at some point drop it.
Which begs the question of long term disability coverage (something my spouse’s employer does not currently offer) - I have a bit of research on that front to do and options to weigh, for I have a feeling that’s something we should seriously consider as well.
It seems this summer is turning out to be the summer I figure out how expensive it is to be a responsible grown up parent. How exciting. 
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July 1st, 2008 at 9:42 am
My accountant said that it’s more important for me, as a married 27 yo with no dependents, to get disability insurance than life insurance because of the higher chance of being disabled than killed.
July 1st, 2008 at 11:31 am
I think that disability insurance is a must. I had a health scare and am really thankful that I had it. I was out of work for 10 weeks. By having the insurance, I could focus on my health and not on my finances.
July 1st, 2008 at 2:37 pm
Long term disability is a must. As Jim said you are much more likely to be diabled than killed, and the income you’d need to replace for the rest of your life isn’t something an emergency fund can cover.
As for short term, much to my dismay, my employer doesn’t offer it. We’ve decided to step up our emergency fund to compensate and would pay the minimums on our remaining debt payments rather than the much larger payments we have been making.
You can get by without short term with the right planning, but for long term that old adage applies -Insurance is for those things you can’t afford to replace.
July 1st, 2008 at 3:44 pm
I could not agree with you more. If your employer offers short term disability at no cost to you, great. Otherwise do it yourself as part of your emergency fund.
Long Term Disability is, to me, as important as health insurance. My Mom that was permanently disabled at 50-something without disability insurance and my cousin permanently disabled in her early thirties with disability insurance. The difference in their qulaity of life was vast. I saw this a great deal in my 15 or so years as an insurance agent, too. You can LTD is a necessity in this household!
July 1st, 2008 at 3:50 pm
Call me naive (I’m very guilty of it lol) but I always thought that long term disability was something that was covered by social security. But it seems it isn’t that simple.
Since LTD insurance isn’t something offered through my spouse’s employer it’ll be more complicated for me to find and figure out, but we managed to do it with life insurance so I assume we will with this too. Heh.
Life is more expensive by the moment, it seems.
July 1st, 2008 at 6:02 pm
SS only covers disability if you are completely unable to work - personal disability insurance can be obtained if you are unable to work in *your* field.
This is a BIG difference - especially if you are a high income earner and cannot return to your prior field due to the disability.
Also, for high income earners, SS peters out far far below the range of what people may earn.
LONG TERM disability is actually the more important insurance for you to have. (No one has a 30 year emergency fund ready!) But almost anyone can recover from 3 months without income (though the results may be miserable!)
I’d also check private vendors on prices. $500 a year seems a little high for the amount coverage you’re talking, but I may be spoiled by our employers great benefits.
Also, you need to be sure to pay for both long and short term disability with POST tax dollars. Then, you are not taxed when you receive benefits. If you pay with pre-tax dollars the ENTIRE amount of the benefit will be taxed!
Good luck navigating this next jungle. I swear it takes 10 years to learn all this stuff!
July 1st, 2008 at 7:48 pm
Glad I found one of your posts I can finally pitch in here. Go with the Dave Ramsey version - skip the short term disability and build your emergency fund. Long term, however is a must!
My employer offers complimentary short term and long term disability for its employees. If I’m disabled, it will pay 60% of my regular earnings “in my field”. Because I’m in a very specialized field, this is a must. Long term disability is VERY necessary and are offered thru many companies independantly. MetLife, USAA (if you’re a member), AIG, UNUM, Mutual of Omaha, etc.
July 2nd, 2008 at 9:40 am
Several years ago I caught pneumonia and was off work for 3.5 months. I was very ill. I was VERY relieved to have both short term and long term coverage. You could say I almost could “breathe easy” since both scenarios were covered.
July 3rd, 2008 at 9:48 am
My wife works for a big pharmaceutical company and has their group disability. What a joke! It pays up to 60% of her income if she qualifies and benefits are taxed as income meaning she’ll really only take home about 45% of her income if she can’t work. We talked to a guy at disabilityinsuranceadvisor.com and he hooked us up with disability coverage that pays 90-95% of her salary. Because we pay the premium, benefits are not taxed. Because I own my own business, we also setup long term care insurance. Gotta have this stuff if you’re at all interested in protecting your finances during an illness or accident.
July 5th, 2008 at 5:51 pm
Long Term Disability insurance makes sense for a person of higher income. Social Security Disability Income (SSDI) won’t keep your family in the lap of luxury. When calculating how much insurance to buy, remember that your benefit from private insurance is usually “less” what is paid by SSDI. Not “in addition to”.
Don