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The Price of Pain

Attention, weekend warriors: Opportunities for physical mishaps are everywhere.

We don't mean to be alarmist, but the Social Security Administration's Disability Benefits publication claims that a "20-year-old worker has a three in 10 chance of becoming disabled before retirement age."

Yup, whether you break a sweat on the basketball court, at the dog park, or behind the wheel on your way to pick up some groceries, your chances of becoming injured and unable to work for a time are far greater than your risk of being sent to that great playing field in the sky.

The worst part about not working? Besides having to watch bad TV, it's the lack of a regular paycheck. With the odds of becoming unable to work for a time so high, disability insurance may be one of your best investments.

While many employers offer life insurance benefits, less than half provide long-term disability insurance. If your employer is among those who have overlooked disability insurance, you may want to suggest a reallocation of benefit dollars. You and your co-workers can get a better deal on life insurance (as opposed to disability insurance) on the outside.

And if you are fortunate enough to get long-term disability insurance through your employer, take a good look at the policy:

  • What fraction of your income does it replace? Typical group policies for long-term disability pay 60% of your current income. Also, if overtime, bonuses, and sales commissions are a big part of your take-home pay, check to see if these are covered.

  • What is the monthly maximum? Most policies cap income replacement at a certain level. If your employer's policy is capped at $5,000 per month ($60,000 per year), for example, any salary beyond $100,000 will see less than 60% in replacement income.

  • How long can you continue to collect long-term disability? Make sure that the policy covers you until age 65, not just five or 10 years.

  • How does the plan define "disability"? Unlike health insurance plans, there is no "standard" disability coverage, and companies can save money by purchasing skimpier plans for their employees. Some common disabilities that may or may not be covered include back injuries, mental illness, stress-related disorders, chronic fatigue syndrome, and severe migraine headaches.

In short, if your employer provides long-term disability that covers 60% of your total take-home pay until age 65 with a generous definition of "disability," give your employer a hearty "huzzah!" You're in pretty good shape, Fool!

One last thing to ask about: Some group disability policies offer extra coverage (in percentage increments) at a very reasonable price, at least in comparison to what it will cost on the outside. If your employer offers this too, take a good look. It may well be worth it.

For more on disability insurance, see our special section in the Fool Insurance Center.


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