Is Disability Insurance Worth It For Moms?

One of the questions I have asked myself, since becoming a mom: “Is Disability Insurance Worth It?” We never talk about it! The answer is hell, yes. If you need your paycheck, you need Disability Insurance (DI)

AskFlossie doesn’t sell insurance, but we do recommend it generally, as the bedrock of your and your kids financial security. In this case, women are far more likely than men to become disabled and subsequently lose income.  Moms need disability insurance more, especially single moms because often you don’t have another source of income (or a reliable one…)

If you’re not sure whether disability insurance is right for you, keep reading. We’ll explain everything you need to know about this important coverage. 

One note: Many women live and work with disability (including me!). In this post, disability refers to a condition that prevents you from earning an income or reduces your income. Because that’s how the insurance companies think about it. Props and thanks to Elaine Tamblyn-Watts who provided great insight for this post as a sensitivity reader.

Why Do Moms Need Disability Insurance More?

Disability insurance isn’t discussed enough, but it’s essential to your financial stability. Especially if you don’t get much/any help from the other parent. Why? Women are much more likely to become disabled than men. Pregnancy, obviously. (My lower back will never be the same, and my thyroid is fried.) But arthritis is the number one cause of disability for women. And it starts early.

Additionally, for most single moms, there is added risk that you are the only/main/reliable income. The point of insurance is to protect against risk. Single moms = baller, but riskier.

Some Disability Facts That Opened My Eyes

Like a lot of women, I have been whatever about disability insurance for a long time, mostly because I didn’t know anything about it. Here’s what I didn’t know:

• 90% of disabilities are caused by illness. Not accidents or car crashes. (SSA.gov)
• 1 in 4 of today’s 20-year-olds will become disabled before retiring (SSA.gov)

Here are the most common causes of new long-term disability claims:

• 29% Muscle, back and joint disorders
• 15% Cancer and tumors
• 10% Injuries and poisonings
• 9% Cardiovascular and circulatory diseases
• 8% Mental disorders
• 8% Spine and Nervous system-related disorders
• 6% Complications of pregnancy and childbirth

Source: Council for Disability Awareness 2014 Long Term Disability Claims Review

What Is Disability Insurance?

Disability insurance replaces your income if you are unable to work as a result of an accident or illness. It’s simply there so you don’t have to pull money from your savings. In order for disability insurance to be effective, it must replace a substantial portion of your income, so 40-70% is typical. Fancy employer-sponsored plans I have reviewed covered 60%. The max is about 75-80%, even with supplemental policies. 

Disability Insurance doesn’t replace your full income.

Disability Insurance Definition

Disability Insurance is an insurance policy that reimburses you for your lost income if you are unable to work as a result of an accident, sickness, or pregnancy. It does not cover disabilities other than the ones that impact your income (or in the case of stay at home moms, your economic contribution).

The amount taxed vs. tax-free, and the type of coverage provided can all differ from plan to plan. If your employer pays the premium, you will pay tax on the benefit payments. If you pay the premiums, the benefits are tax free. 

Short-Term and Long-Term Disability Insurance

There are two types of disability insurance:

• Short-Term Disability Insurance pays you a percentage of your previous income if you are unable to work for six to 12 months. Private short term coverage can be very expensive, and provide limited benefits, so it’s worth doing the math if you’re looking at this for say, pregnancy or surgery recovery. 
• Long-Term Disability Insurance provides benefits for a longer period, based on your policy 5, 10, or 20 years or even until you reach retirement age.

Short and Long Term apply to different situations. Short-term is used to cover things like pregnancy or a fractured limb that will mend just as expected. Long-term, on the other hand, covers illnesses such as cancer that may take years to treat or cure.

Disability Insurance vs Long Term Care

Important: Long term disability insurance is not long term care insurance, which helps pay for  care facilities and services if you are unable to do some of the activities of daily living (bathing, dressing, eating, walking, using the bathroom). Long Term Care Insurance is a whole other ball of wax for the over-50s.

How Does Disability Insurance Work?

There is usually a waiting period before you can start receiving assistance.  Short term policies require you to wait a week or two. For long term policies, the wait is typically 90 days, but can be up to a year. After that, you receive a percentage of your income, based on the policy you chose.

What Does Disability Insurance Cover?

Disability insurance is only available for disabilities that limit your capacity to work. If you can still do your job with or without reasonable accommodation, you cannot collect benefits. There are two ways this is measured:

“Any” Occupation

Some types of disability insurance, like Social Security Disability Insurance (SSDI) require you to be unable to work at any job. They assess this based on your ability to do normal tasks like dress, bathe, feed yourself, go to the bathroom without assistance etc.

“Own” Occupation

Other disability policies cover you if you cannot do the exact job you were doing before. These policies are generally more expensive, and are appropriate for people with very specialized jobs. Like a dental hygienist or a nurse – they would require a lot of retraining to replace their income.

What Impacts The Cost of Disability Insurance?

Several factors will influence how much you pay. 

Your Work

Dangerous jobs beget higher premiums than desk jobs, so all you smoke jumpers out there will pay more.

Older Women Pay More 

Your body falls apart as you age, so the cost of disability insurance increases as you get older. That’s not something you have any control over, so I would just forget about it.

Women Can Pay 40% More For Disability Insurance

Everything else being equal, women can pay much higher premiums for DI. We file more claims, for longer time periods. But, we live longer, so we pay less for life insurance.

Shocker: Healthy People Pay Less

This one is obvious, but people who have a past, present, or future health issues pay higher premiums. Here’s what will get you:

• Past or current smoking
• Chronic conditions
• Family medical history
• Your BMI
• Anything that comes up in a medical exam or blood tests

Other costs come from how long the elimination  and benefit periods are, aka how long you have to wait and how long you get paid.

Side note: check out our blog post on Health Insurance For Single Moms.

Disability Insurance With A Pre-Existing Condition

It may be possible to get DI, even if you have a pre-existing condition. However, it will vary by insurance company, some conditions will disqualify you, and your condition may raise your costs. 

There is also some nuance. For instance, some insurance companies will insure women who have had cancer, but have been in remission for 3-5 years. They will just exclude the cancer from your coverage. 

This also applies to less debilitating conditions, such as anxiety or back issues. If it shows up in your medical record, the insurance provider will consider it.  However, it’s still extremely important to tell the truth on your application – any omissions or fibs will give them a reason to decline your benefit if you can’t work. Even if that condition didn’t cause the income loss. Lay it all out there. 

How Do I Get Disability Insurance?

The best way to get disability insurance is through your employer. If you are not employed, coverage might be available through your state. You can also purchase insurance on your own.

Getting Disability Insurance Through Your Employer:

There are two ways to get insured through your employer’s group disability plan (during open enrollment in the fall or whenever you have another qualifying event like getting a new job). To see if this is available to you, check your employee benefits package or ask HR. 

• Option One: employer-sponsored coverage. Your employer may offer a plan and pay some or all of the cost of premiums. Make sure you opt in if it’s offered. 
• Option Two: Purchase coverage through your employer’s plan. Some employers don’t pay for disability insurance, but give employees the option to buy coverage. Because you go through the employer’s insurance broker, you usually get a good group rate. 

This is one of those employer benefits you pay extra to max out, if you can. 

The biggest downside of an employer-sponsored coverage is you can lose your insurance. Insurance plans are not portable, so if you change jobs or leave the workforce or your employer decides to not to offer the benefit, you can’t keep your plan. (You might be able to take the coverage if you pay the full premium, but it varies and is not guaranteed.)

Get Disability Insurance through your Professional or alumni organization

If you don’t have access through an employer, you can also access group rates for lots of kinds of insurance through a professional or Alumni Association. Check with any groups you’re affiliated with or COULD be affiliated with. 

Private Disability Insurance

You can purchase disability insurance on your own, if you don’t have access to a group rate or if you want to beef up your coverage. Supplementing can be important if your coverage through an employer is based on salary, but your take home pay is mostly bonuses or commissions.  

Buying your own policy has some financial security benefits:

• You can tailor it for your needs (see options below)
• Keep the coverage when you change jobs. 
• You control your financial security – employer-sponsored coverage ends if the employer decides to stop providing disability benefits.
• Collect benefits tax-free so the same amount of coverage is worth more

If you choose to buy disability insurance privately, you can get it from an insurance broker or directly (online!) from an insurance company. Go with a company you have heard of before that has been around. The Big Names include Guardian, MassMutual, Northwestern Mutual and Principal. (These guys don’t pay me) Most private policies are for long-term coverage, but some companies also offer short-term.

Disability Insurance Options and Features

When purchasing or reviewing a policy, here are some potential features, in order of importance for financial security (IMO):

Waiver of premium

“Waiver of premium” means if you stop working and take the benefit, you no longer have to pay the premium to keep the policy active. Similarly, you may find a similar option if you are admitted to hospice.

Cost-of-living adjustment (COLA)

A COLA rider requires the insurance company to increase your benefit every year to account for inflation. As 2021 taught us, inflation is real. 

Student Loan Payment Protection

Student loan payments are often the budget item that determines bankruptcy or bounty, so if you have a substantial loan balance, check if you can get extra coverage to pay your student loans. It gives you a higher benefit than you’d qualify for with your income. 

Not all companies offer it, but the other option – the federal loan “Total and Permanent Disability” program – is challenging. And also hard to qualify for. And bankruptcy won’t get rid of your loans. 

Unemployment premium suspension

This keeps your policy yours while you’re unemployed, and allows you to stop paying premiums. However, coverage is also suspended, so if you become disabled and unable to work between jobs, you won’t receive a benefit. Ideally, your emergency fund should cover your insurance premiums.

Catastrophic disability benefits

Provides extra funds – up to 100% income replacement – if you become totally disabled or cognitively impaired, similar to the social security disability qualification and definition. 

Occupational rehabilitation / modification / access benefit: 

Helps pay for occupational rehabilitation, to modify your work environment to accommodate physical limitations. For modifications to your home environment, your health insurance may cover that, and to an extent, it’s deductible on your taxes. 

Future increase option

If you expect your income to go up, a future increase option lets you increase coverage without a medical exam or proof of medical insurability.

Retirement protection

This rider keeps you actively participating in your pension, by replacing the contributions you owe while you’re receiving disability benefits.

Is disability insurance worth it?

Absolutely if your income is your kids’ only support.

Absolutely if your savings buffer is slim.

Probably, if you have any chronic, progressive or likely-to-be-inherited health issues.

Maybe, if you have a huge savings to fall back on.

Maybe, if you have other means of support (early pension option, a good retirement balance)

Short Term Disability in Your State

A few states offer short-term disability insurance (STDI) or Paid Family Leave. STDI typically covers a portion of your salary for up to six months, while PFL is shorter, usually to allow you to bond with a baby or take care of a sick kid or family member. 

States that offer short-term disability insurance

Only five states offer STDI: California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico. These require employers to offer short-term disability, but each has its own terms and limits. 

PFL states are California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington.

Social Security Benefits for Moms with Disabilities

Social Security Disability Insurance (SSDI) and Supplemental Income Insurance (SSI) provide benefits for people who become disabled to the extent they are unable to support themselves before they are old enough to retire. However, SSDI and SSI are hard to qualify for and are intended as long-term income.

Social Security Disability Insurance (SSDI)

You can qualify for SSDI benefits with a disability expected to last at least 12 months or result in death. You must be able to prove that you cannot do any job, even with reasonable accommodations. According to the social security administration, only 16% of people with disabilities qualify for SSDI and only 34% of people who apply receive benefits. 

While some disability insurance provides benefits to people with partial disability, Social Security does not. Think of it as your last resort: low limits, tough requirements, lots of red tape.

Additionally, the benefits are not going to maintain much of a standard of living. To quote the SSA, “At the beginning of 2019, Social Security paid an average monthly disability benefit of about $1,234 to all disabled workers. That is barely enough to keep a beneficiary above the 2018 poverty level ($12,140 annually). For many beneficiaries, their monthly disability payment represents most of their income.” They are not even kidding themselves.

There are also income limitations – around $1700 per month in 2022. Everything you earn – in any job – reduces your SSDI benefit, so it’s actually very common for total income to drop when someone receives SSDI. And your benefit is based on your income history, rather than your need. But if you need it and you paid into it, it’s there. 

Supplemental Security Income (SSI) 

SSI is the last safety net provided by the government. It provides benefits to disabled adults and children with extremely limited resources and income. For instance, the total financial resources (assets, including your car, that you could convert into cash for food and shelter) for a single person must fall below $2000. 

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Thank you for taking the time to read this blog post. As a mom and daughter of a single mom, I know how hard it can be to juggle work, kids, an aging parent and other responsibilities. But life whammies happen, financial security in case of an illness or accident is so important! 

If you don’t already have disability insurance through your employer or state program, I recommend you work on getting some coverage right away. Sign up for the AskFlossie list and let us know if you have any questions!

Photo courtesy of @Family_Road_Traveled with thanks!