Odds are that 1 in every 4 20-somethings will be disabled before age 65.
Just over one in four of today's 20-year-olds will become disabled before age 67, according to the Social Security Administration. You're three times more likely to become disabled for a year before age 65 than die, according to a recent report by Sun Life Financial.
"Every consumer is vulnerable," said Stephen Brobeck, executive director of the Consumer Federation of America, which advocates that more employers offer group disability insurance. "The probability of being out for an extended period of time applies to all Americans. This is coverage that should be part of everyone's basic financial plan."
The good news is that if you work for a relatively large company, you probably have disability insurance and your employer pays for some or all of it. Still, only three in 10 American employees have it.
Here are a few basics.
What it is: Long-term disability insurance refers to payments you receive after being out of work, typically for three months or longer, with a disability. Payments are often equal to 60 percent of income, which isn't full replacement of income but can help many households get by. You typically can't get full income replacement because insurers want you to have an incentive to go back to work when you are well. It's usually worthwhile to pay extra through an employer to get more salary replacement -- say, 70 percent -- if you have the option, experts say. Be aware that most disability policies do not replace income from non-salary sources, such as sales commissions or bonuses at work.
What it's not: Disability insurance is not about getting paid after being injured on the job. That's workers' compensation. The vast majority of injuries and illnesses causing work loss are suffered away from work. Social Security Disability Insurance is different, too. It might provide a source of income, but it is difficult to qualify for. And payments average only about $13,000 a year, according to the Consumer Federation. "You really have to be a basket case to collect under Social Security," said Matt Tassey, a disability insurance broker in Portland, Maine.
Who needs it: Working people, especially singles or breadwinners in single-income households.
Where to get it: The easiest and least-expensive way to get coverage is through an employer's group plan. If your employer doesn't offer it, try trade or professional associations or small-business organizations you belong to, Tassey said. Sometimes you can get it through a bank or credit union in association with a loan you have with that institution, he said. Failing those options, you can buy an individual policy, often through a broker. And an individual plan is portable, meaning you take it with you from job to job, unlike an employer-provided policy.
How much it costs: With disability insurance through an employer, monthly premiums usually range between $10 and $30, according to the Consumer Federation. Employers often choose to pay all or a portion of those premiums. When buying insurance on your own, it can be more expensive, probably 2 to 3 percent of income. So for many, it might cost in the neighborhood of $2,000 a year. That's a lot of money, but it's all in how you think about it, suggested Byron Udell, CEO of online broker AccuQuote.com, which sells disability insurance. Which job would you rather have: one that pays $80,000 when you're well and zero if you're sick or hurt, or one that pays $78,000 if you're well and $53,000 if you're sick or hurt? The second example, preferable to most people, represents your salary minus the $2,000 a year it costs for disability insurance, which would pay out $53,000 (66 percent) if you're disabled.
What to look for: Pay special attention to a few policy features besides price. How long after you become disabled do payments kick in? It's akin to a deductible with other insurance. The best value is a waiting period of 90 days, Udell said. Once you start receiving payments, how long will they keep coming? What is the definition of disabled? Does the policy cover you if you can't work at your own occupation or work in any occupation? That's a big difference.
"How long do I wait, how long does it pay and what do I have to do to be disabled?" Tassey said in summing up the primary considerations besides price.
Gregory Karp, author of "Living Rich by Spending Smart," writes for the Chicago Tribune. His e-mail is email@example.com.