Disability insurance — also known as income protection coverage — is one of the most important and overlooked pillars of financial planning.
Think about it. The average person is so dependent on their ability to earn a living, they couldn’t continue their lifestyle if they missed even a single paycheck.
The Federal Reserve asked adults in 2016 how they would pay for a hypothetical emergency expense that would cost $400. This amount is approximately the cost of an unexpected car repair, appliance replacement, or medical bill. Forty-four percent of people said this kind of bill would be hard to handle, and that they either could not pay the expense or would borrow or sell something to do so.
When people buy insurance, most choose some form of health, life, car, and homeowners’ or renters’ insurance. All of these purchases have one common denominator; the premiums are paid with your income. When you think about it, it seems foolish to forget to insure the one thing that lets you pay for everything else — your paycheck.
The connection between pregnancy and short-term disability
There are many types of accidents and illnesses that prevent people from working for a period of time: back pain, depression, heart disease, cancer, auto accidents, and so on. Yet many people don’t think of having a baby when they think of “disability.” Yet pregnancy is the most common cause of short-term disability claims.
Women are typically paid eight to 10 weeks of disability benefits when they take time off to have their child (two weeks before their due date and six weeks afterward). The duration can vary based on cesarean-section deliveries or other conditions that may require the claimant to limit work activities or work exposure.
One of the major differences between pregnancy and other types of disability claims is predictability. The timing of pregnancy for many can be the result of planning. For a healthy woman, purchasing coverage through their workplace in anticipation of a planned pregnancy can be a fairly easy transaction. The key is that you buy coverage before you become pregnant. This way there is little risk of underwriting issues or denial of your claim due to a pre-existing condition limitation.
Pregnancy and long-term disability insurance
Most long-term disability insurance offered through your workplace will also pay benefits for pregnancy-related complications if you can’t work for more than 90 days.
If you purchase individual disability coverage through a broker or agent, most insurance carriers will cover complications of pregnancy if your policy has a waiting period of longer than 90 days. (The waiting period — also called the elimination period — is how long you have to wait to receive benefits after you become disabled from work.)
The advantages of continuous coverage
Some consumers will purchase disability insurance in anticipation of a pregnancy and cancel the coverage after delivery. It’s also not uncommon to see ex-participants re-apply while planning a subsequent pregnancy. While this purchasing pattern is not illegal or unethical, it’s a risky approach to insuring your income, and it’s certainly not a pattern that disability insurance coverage was designed to endure.
So, what is a win/win for the carrier and policyholder? Maintaining continuous coverage.
It’s important to remember that disability insurance is designed to protect you against the unexpected loss of your work capabilities due to an accident or illness. While pregnancy is a common reason to file a claim, you always have additional risk for many unexpected events.
It’s also important to remember that voluntary coverage that you buy at work is often subject to underwriting guidelines. Your ability to obtain coverage could change at any time if you have an accident or develop a newly-diagnosed health condition. Trying to time when you have disability coverage is similar to trying to time when you invest in the stock market, and could easily leave you uncovered at an inopportune time.
None of us are immune to accidents or illnesses. They can strike at any time. It’s important to make sure that you’re covered. And once you’re covered, it’s important that you stay covered, regardless of the original reason you applied for your disability insurance. Get it, keep it, and rest easy knowing that you planned ahead.