Having your first real job after college is such a great achievement. You earn money, and maybe, even get an office plant. However, there is one boring adult task that you should take care of. The thing is that you need to secure your earnings when you are still young.
Disability insurance may be called a super cape for protecting your earnings in case you become ill or get an injury and, therefore, are not able to work anymore. It is not just an insurance issue for those who engage in extreme sports and for workers whose job involves danger. The cases of pneumonia or broken wrist can easily stop your money flow.
Usually, LTD is provided by companies as a part of a regular package. This kind of insurance covers 60% of the base salary of the employee in case of his/her inability to work. Seems good, doesn’t it? However, it is better to remember whether the premiums are paid pre-tax or post-tax.
It is extremely important to know whether your premiums are paid pre-tax or post-tax. If the first option is correct, then your benefit will be taxed in case you make a claim. In case the premiums were paid post-tax, you get tax-free money. It is quite an important nuance if you ever need to withdraw money from your insurance company.
Group coverage is rather beneficial; however, it has one drawback. Typically, group policies consider disability as an inability to perform any occupation. Such criterion is a really high bar to meet.
Let us say that you are a marketing specialist and you cannot use your hands due to some injury. The insurance company will argue that everything is fine since you can still work as a cashier at a supermarket. Since you are unable to perform any occupation, you do not get any money. This is the trick of typical group coverage.
What can you do about it? In order to avoid this issue, you should buy Individual Disability Insurance (IDI). It is important to get “own occupation” coverage in your policy. This means that you are insured by your insurance in case you are unable to perform your exact job.
The best time to buy such policy is right now. Being young and healthy, you pay extremely low premiums.
You save a lot of money during all your working life when you lock yourself in a low rate now. It sounds awkward to go to an agent now at the age of 22 and buy such a policy. Now you think that you are invincible. Believe me, in the future you will be thankful to yourself for having done that.
Find your employer’s open enrollment documents and check whether there are any “buy-up options”. In case there aren’t, it is time for you to purchase your own policy. It is a boring task, but it is the most responsible one. Of course, it is a wiser choice than investing in the meme stock your uncle advised you after dinner. 😄