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Dear Dr. Don,
I pay $180 a month for private disability insurance. It has an own-occupation clause and increases with inflation. I’m 31 and have been paying for the insurance for about eight years.
I’ve been wondering whether I’m wasting my money on this insurance. I suffered from a bulged disc this summer, but it didn’t stop me from working as a software developer. I just stood at my desk or, at the worst, lay in bed with my laptop. Also, my employer provides a basic disability insurance plan.
I asked the broker who sold it to me, and he showed me how much better the coverage is than what my employer offers. But I wonder whether that’s really worth $180 a month. Could you weigh in? — James Joist
Dear James,
If there’s one area where consumers tend to be underinsured besides life insurance, it’s disability insurance. It’s probably because they have a sense that between the group coverage offered by their employer and eligibility for Social Security disability income, there’s no need for additional private insurance policy.
One reason to consider a private insurance disability policy is that employer plans typically aren’t portable. Coverage ends when you separate from service. Also, if you don’t like the terms of the employer-offered group coverage, a private plan might be a good alternative.
One possible distinction is between “own occupation” and “any occupation” coverage. Not being able to work in your field is a bit different from not being able to work in any job. Cost-of-living adjustments and other policy riders and coverage can also influence the decision to buy a private policy.
Your current coverage seems a little pricey, but I don’t know enough about you, your health, your work history and the policy benefits to advise you whether you should drop this coverage. I’d suggest you work with a fee-only financial planner to review the policy in the context of other coverage available to you and your need for this insurance.
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