Protecting yourself from a financial disaster is easier said than done. According to GOBankingRates, 48 percent of Americans reported that they do not have enough emergency savings to last them longer than three weeks.
So, what would happen if an unexpected disability kept you out of work for longer than that?
It’s not that far-fetched, considering the Social Security Administration estimates 25 percent of today’s 20-year-olds will experience a disabling event that prevents them from working for at least a year at some point in their careers. For most Americans, this would cause serious hardship.
Here are five ways an unexpected disability can cause financial disaster — and how individual disability insurance can help you protect your greatest asset.
1. Filing For Bankruptcy
It’s no secret that the financial impact of health issues can be devastating. In fact, roughly two-thirds of all bankruptcies in the United States are tied to medical events and the resulting bills.
Due to the high cost of health insurance, many people take out insurance plans with very high deductibles and co-payment amounts. When a major medical condition arises, this makes it difficult to meet financial obligations to their healthcare providers. In many cases, this can eventually result in the need to file for bankruptcy.
If you are a business owner, this may also mean filing for bankruptcy for your business as well due to the inability to pay creditors when you are without a paycheck or adequate savings.
2. Home Foreclosure
Unfortunately, experiencing an unexpected disability can quickly deplete your available funds if you do not have adequate disability insurance coverage. This often means making hard choices on where to spend remaining savings.
Housing is typically the largest monthly expense for individuals and families alike. Then there’s food, clothing, transportation, health insurance premiums – these all compete for the limited money available.
Even by cutting back on discretionary spending on things such as entertainment and dining out, you still may have trouble paying your mortgage after your pay all of your other necessary monthly expenses. This can lead to foreclosure and the need to move out of your home to reduce the size of your monthly payment for housing.
If you suffer a serious disability that doesn’t stem from work, you will be unable to get any benefits from workers’ compensation provided by your employer. Unfortunately, your employer may also not be required to hold your job for you.
Without individual disability insurance or qualifying for Social Security Disability Insurance, you may very well not have any income. If you are unable to work in any occupation, you could very likely face the prospects of government assistance and personal bankruptcy.
A strong individual disability insurance policy should include an own-occupation provision. This definition of disability will ensure that you receive a percentage of your lost income each month until you are able to return to working in the same profession.
4. Drowning In Debt
It doesn’t take a long time for unpaid bills to snowball into a mountain of debt. Facing a long-term disability with limited or no income can quickly deplete any savings an individual may have accumulated. Unfortunately, many monthly expenses are not discretionary and must continue to be paid.
Living off of credit cards is a financially unhealthy solution many people implement during periods without sufficient income to pay bills. Groceries, utilities, fitness clubs, entertainment, and medical expenses are just some of the items that are often paid for on credit, and the maxing out of one card only leads to a new or different credit card being used.
Some individuals may be able to borrow money from friends and/or family members. Not only can this strain relationships, but it also adds to the list of people that need to be paid back. This puts greater pressure on the disabled individual and causes tremendous stress.
5. Depleting Your Savings
According to a 2019 study by Bankrate, the typical American household has an average of $8,963 in an account at a bank or credit union. For many Americans, this amount will cover just a few months of living expenses, quickly drawing down funds from savings and checking accounts.
Unfortunately, many disabled individuals will also need to make withdrawals from retirement plans and life insurance policies with cash value accumulated. These safety nets are a short-term solution to a long-term problem and don’t prevent families from bringing account balances down to zero.
Once again, here is another example of how the income protection provided by individual disability insurance can prevent you from experiencing a financial disaster, such a depleting your life savings.
How Individual Disability Insurance Can Help
As you can see, financial disaster takes many forms and can happen to anyone. However, individuals who have personal disability insurance coverage are much better equipped to avoid the five financial disasters detailed above. By protecting your income with individual disability insurance, you can count on receiving tax-free benefits each month if an unexpected injury or illness prevents you from performing the duties of your occupation.
In addition to being a sound financial solution, disability insurance can also provide peace-of-mind to you and your family. This can lessen the probability of depression, anxiety, substance abuse, and other physical manifestations of stress.
The key to protecting your income means being proactive now while you are healthy in case something bad happens in the future. Fortunately, there is an easy way to apply for affordable disability insurance from the comfort of your home. With Breeze, you can get quick, personalized disability insurance quotes and complete a secure, online application process in about 15 minutes.
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