Purpose of disability insurance benefit?

[spotty_dog]

DH and I have been talking lately about re-evaluating the amount of disability insurance we carry on him. We have yet to exercise the future purchase options on the policies, which were purchased in residency. But the premiums are already pretty high; in fact, DH has already been charting an exit strategy (trying to figure out at what point we'll have the resources to self-insure.) So we were talking about how much we need from the policy, *really*. I roughed out our current expenses as a suggestion for how much we need monthly, and DH scoffed and said that if he's disabled, we'll be downsizing hard.

He makes a good point. If he's temporarily disabled, the policy plus our emergency fund will carry us through. But if he's permanently out of work, it's no good carrying on our same lifestyle. Among other things, even with disability payments to match our current expenses, where would we get retirement savings, home maintenance savings, future cars, etc.? Things would definitely change, starting with tightening our belts on fun purchases and grocery budgets, plus me finding a job, and possibly selling the house, etc.

It made me wonder. When *you* choose the size of your disability policy, what scenarios are you envisioning? What do you expect it to cover? Exactly the same lifestyle as ever with no change? Or just the bare minimum to keep your family alive while you scramble for a new solution? Or something in between?

[MrsK]

For long-term disability or death, our biggest concern was college tuition for our kids. We wouldn't want them to be burdened with debt because we were disabled or departed. Otherwise, it was a matter of replacing his income long enough for me to get my career on track. Also, we were concerned about expenses health insurance wouldn't cover like putting ramps in a private home.

[Deebs]

We had the same train of thought as MrsK. We wanted enough to buy an adapted van outright, and either build or convert a house to one that is accessible, all in the short term. We basically planned for the worst, but we know two docs who are currently facing the worst and didn't have disability insurance. They are both stuck in really bad situations because of it. Maybe when our kids are older we may be able to drop it lower, but for now, I'm good with what we're paying in exchange for the piece of mind it gives me.

[spotty_dog]

So, you guys are both talking as if your LTD is coming as a lump sum you can use for big immediate needs, and not a monthly benefit based on percent of income. Is that the case?

You raise interesting ideas...I frankly had not considered the actual details of what might disable my husband to the point he couldn't work. (I guess I was thinking chronic illness, rather than trauma?) But duh, anything that is going to ding his ability to work is going to ding the health insurance big-time...definitely something to consider.

Ugh, morbid. But necessary. Sigh.

[poky]

My guess would be that knowing the disability insurance is coming in would allow you to use your savings for the big immediate needs, no?

[Deebs]

Ours won't come in a lump sum. Our emergency fund would cover the immediate needs while disability would bring in monthly salary to keep up with regular expenses, since our emergency fund would be gone.

[TulipsAndSunscreen]

Right now, ours would go to partially cover loans. You still owe the loans even if they're disabled. We'd have to scale back. I'd hope that DH could manage the kids at least and we'd stop the nanny while I continued to work. There's no going back to work for me since I already work though that might not be the case years down the line.

[Deebs]

Federal loans can be discharged in cases of permanent disability or imminent death.

[TulipsAndSunscreen]

Federal loans can be discharged in cases of permanent disability or imminent death.

True. But I don't trust the federal loans not to say he couldn't do an IM residency or something non operative since he's still a resident.

[spotty_dog]

My guess would be that knowing the disability insurance is coming in would allow you to use your savings for the big immediate needs, no?

Yeah, definitely, and that's kind of how I'm thinking of it. But...OK, right now the policies will replace about 55% of DH's after-tax monthly earnings. Since our actual fixed expenses aren't high we can rein in and cover our month-to-month with this payment. But for the long-term, we'd need to make lifestyle changes, quit living like a dawkter's family, and yes, the kids would end up having to cover their own college expenses because we'd have bigger fish to fry like retirement. In the meantime we'd be tapping the emergency fund for the 3-month exclusion period, plus probably a couple of years of the out-of-pocket cap on insurance...and as brought up, we might have other immediate needs. But we definitely have assets to cover almost any contingency; it's just cash flow that I feel like needs addressing.

So, we have the option to pay an extra $3000 per year in exchange for raising the benefit to cover almost 100% of DH's after-tax earnings. And that's just one policy...theoretically, we could actually get covered for something like double what we actually spend! Now, while it's pretty tempting to think of having nothing change -- especially if, say, DH is still fairly able-bodied save for whatever keeps him from working -- it just feels so incongruous to imagine continuing to splurge on art and vacations without having ANY earned income. So at the moment the extra premium feels superfluous since the extra payment would be more than strictly necessary. Still, I'm thinking it wouldn't hurt to bump it up just a bit to give us some breathing room, more easily cover day-to-day expenses and not have to cut back as hard as fast...and this is why we've been paying for the FPO rider all this time!...we'll have to think it over I guess.

[Vishenka69]

We maxed ours to equal DH's post tax income (plus max of allowable 401 contribution and inflation adjustment). After getting rid of the rider and increasing the waiting period to 6 months, it only ended up being an extra $2K per year. With two small children, we thought it was worth it. Once the kids are older and we have more savings, we might scale down but for now we prefer having a peace of mind.