As an insurance agent, you would expect me to answer that both life insurance and disability insurance are important. And that is somewhat true. But in reality, the answer to this question is not simple and will differ for different people, depending on what stage of your life you are in.
When looking at disability insurance, an example would be if someone has about three to six months of their salary saved in a bank account, and has very little debt. For them, it may not make sense to have disability insurance, particularly if they don’t have dependents and their expenses are low. If this person was off work for the short term, they could get by without insurance. But, if they were to be out of work for a longer period of time, then having disability insurance may make sense for them.
On the other hand, someone with some savings and little debt, but with a family depending on them, may opt for disability insurance because they do not want to dip into all of their savings, or into their retirement, and they know they will have various expenses to cover.
The main factor to consider when deciding on whether to take out a disability policy is that a person usually does not know exactly what they will need it for or how long. Injuries and illnesses are often accidental or unforeseen. And this is the main purpose behind disability insurance. It ensures essentially that you do not go broke because of an unforeseen accident or illness. Consider someone breaking their leg in a car accident. If their job requires that are active and mobile, or that they need to drive themselves to work and have no one to drive them while they are recovering, disability insurance would be extremely beneficial to them.
Life insurance serves a different purpose than disability insurance. It essentially pays out on your death. Often, I speak to young people who say that they do not feel they need life insurance. They don’t own anything (such as homes) and don’t feel it is necessary. My argument to them is that I am sure they would not want their family bearing the burden of funeral expenses. And so they may want to consider a smaller policy that would cover funeral and potential medical expenses.
Factors that I ask my clients to consider when thinking about both disability and life insurance include:
- Are you the main breadwinner?
- Do you have dependents?
- Does your family rely on your income?
- Do you have savings?
- Do you have debt?
In summary, a person’s needs will vary according to their circumstances. I do not believe in overinsuring people. I will assess a person’s needs and decide which policies make the most sense for them.