Vacations Trump Paychecks
By Ric Edelman
Which is worse: having a vacation canceled due to bad weather or suffering a disability that prevents you from earning a living?
Clearly, the latter would be far more devastating than the former. Yet nearly 100% of those who say that a canceled trip would leave them financially devastated have taken steps to protect against such losses, according to a 2009 survey by Northwestern Mutual; less than 13% of those who say that devastation would result from disability have protected themselves — even though the odds of a 25-year-old becoming disabled by age 65 are far greater than the likelihood a trip will get canceled due to a hurricane.
Why won’t people buy disability insurance? Some have coverage at work, but most say they don’t think they will ever suffer a disability that would prevent them from working. Events like that happen to “other people.”
Except that, to the other guy, you’re the other guy.
The insurance company Guardian says that 30% of 25-year-olds are likely to experience a disability before age 65 that will keep them out of work for 90 or more days. Injuries, infectious diseases, cancer, and mental health or substance abuse problems can sideline you for weeks, months or even years, as can other health problems.
So the next time your advisor mentions disability insurance, ask yourself how long you could maintain your standard of living if a disability caused you to lose your income. If you can’t go 90 days — let alone many years — without a paycheck, then you need disability insurance.
Originally published in Inside Personal Finance May 2010