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Home » Insights » Insurance Protection » Is Disability Insurance Still Worth It? Factors to Consider Before Cancelling
Ian Hamre, CFA®
Sr. Wealth Advisor
When contemplating cancelling your disability insurance, there are considerations other than cost. Here’s what to think about.
If you can financially take care of yourself and your family for an extended period without income, you may be wondering whether you need to continue paying for disability insurance.
First, a brief review of disability insurance:
Determining your disability insurance need comes down to your assets and income sources. Do you have enough between savings and investments to provide a monthly income replacement if you can no longer work? Would there be any tax implications to withdrawing from these assets, for example, withdrawing from a 401(k) prior to age 59 ½. Do you have any other income sources such as real estate income or a pension you could activate early? After taking everything into account, is this enough to support yourself as well as others who depend on you?
Keep in mind that the average long-term disability insurance claim lasts for 34.6 months, so you’ll want to be confident that you can cover expenses for at least that long.3 And the waiting period for benefits to start after submitting a claim can be 90 days or more.
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SHORT-TERM DISABILITY INSURANCE
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LONG-TERM DISABILITY INSURANCE
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Definition
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A type of insurance that is often offered through your employer. It provides partial income replacement for a temporary amount of time.
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A type of insurance that provides partial income replacement for an extended amount of time.
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Waiting period
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Typically two weeks, but it can be anywhere from one week to one month.
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Can be anywhere from 90 days to a year.
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Benefit period
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Often three to six months, sometimes up to one year.
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Often five years, 10 years or up until retirement.
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Coverage amount
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Usually about 60% of your salary.
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Usually 60% of your salary. Depending on the insurer, it may be no more than $7,500 per month.
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Source: What is long-term disability insurance and how does it work? (usatoday.com)
Here are some other considerations:
Consult with your wealth advisor who can help you evaluate your complete financial plan and determine if disability insurance is necessary for you to keep at this stage of your life.
If you’re not a Mercer Advisors client and want to know more about whether you can afford to cancel your disability insurance, let’s talk.
1.“How much does long-term disability insurance cost?”, Policygenius, April 1, 2024.
2.“The cost of long term disability insurance,” Breeze, Feb. 15, 2022.
3.org, The Council for Disability Awareness.
4.Disability and Health Data System, CDC, 2021.
5.“Do You Need Disability Insurance?“, AARP, Aug. 23, 2012.
Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.