Why have Short-Term Disablity?

Recently at my job, we had our annual visit by our insurance broker.  This meeting is where she explains to us our health insurance options as well as life insurance and disability insurance.   As I looked around the room at the blank stars, I thought of my next blog topic!

Do I need short-term disability insurance?

If your company offers this, you might be wondering if its something you need. If you sat through a benefits meeting you may even feel guilty if you don’t want to spend the money for this insurance. 

Luckily, the math on this is actually quite simple, and I am going to use my real numbers to explain it all, since they actually gave me the specific pay amounts. 

Short-term disability insurance means if you have a major illness or accident that is going to keep you out of work for an extended period of time.  They tell you benefits kick in “immediately,” or, as it’s worded on the paperwork I sign “after 0 days injury or 0 days sickness.”  However, that’s not entirely true, because you don’t really get a check that first week. (Hopefully you have vacation or sick days that will cover that time. If not, you will be 100% unpaid that week.)

Once it does kick in, for me in week 2, I get paid for 12 weeks.  I get $378 a week, or $1512 a month.  Because my premium would be coming out pre-tax, I will be taxed on that amount, so let’s say my income will be about $1100, for three months.

It might be tempting to say, then, as long as you have $3300 in your savings, you don’t need to spend the money for short-term insurance.

However, there are two questions you must answer.  First, can I live on $1100 a month?  Second, what if this extends into long-term disability?

For me, right now, if I stop putting money into my ROTH IRA, and suspend my gym membership, and figure less fuel expense since if I am on disability I probably won’t be going out too much, then yes, it’s no trouble to live off $1100.  Of course, there may be doctor visits and prescriptions and whatnot, so you really need a bubble there.

Second, what if this extends to long-term?  For me, that means the same amount per month.  And that’s where things get tricky.  The fact of the matter is, if you need long-term disability, there’s a good chance you will have added expenses.  Whether that means buying aids for daily life or getting help around the house or, again, medical bills and prescriptions, there will be expenses. Plus, over the long term there just ARE expenses. You’ll want a new CD or DVD, you will buy birthday presents, your car will need repairs, or your wardrobe will need updating.  So you can’t drain your savings in the first 3 months. 

Now, comparatively, what does it cost to HAVE short-term disability? 

$14.36 per month. 

This means, roughly, that I would need to pay in for nearly 9 years (105 months), to pay in as much as I would get out in ONE month, let alone three months.

So many people shrug and say they don’t need short-term disability, and I would love to believe that no one I know will ever need to use this type of insurance.  But at the end of the day, the numbers show clearly that short-term disability could be one of the smartest wastes  of money you can invest in.