Top 5 types of people who need disability insurance but probably don't have it

Even healthy people may need disability insurance due to accidents or other event
About one in four workers will become disabled by the time they're 67
Even healthy people may need disability insurance due to accidents or other events

When my freelance work grew from a side hustle to my family's primary source of income, I decided it was time to get serious about our finances. So I purchased life insurance, started saving for retirement, and crafted a four-part benefits plan. Yet one thing still worried me: disability insurance.

Disability insurance replaces some of your income if you cannot work. The idea is that you have enough replacement income to cover essential expenses. Usually, disability insurance covers 60-70% of your income, enough to cover your mortgage, groceries, and other non-discretionary costs. There are two types of disability insurance: short-term (for work absences of fewer than six months) and long-term (for absences of 90 days or more).

As the breadwinner in my family, I found myself thinking of disability insurance at unexpected times. I wondered how long I would be out of work if I took a spill and broke my wrist while ice skating with my daughter. Then, when a colleague experienced health issues impacting their ability to work, the need seemed even more pressing.

The more I learned about disability insurance, the more I realized many people (including me) don't have it but probably should. So here are the top five types of people who should follow my lead and start thinking seriously about disability insurance.

Freelancers

We're constantly hearing about the ever-expanding gig economy. The acceleration of freelancing and gig work became even more rapid during COVID. There are tons of benefits to being a freelancer, including flexibility and even job security. The downside is you don't have employer-provided benefits, including disability insurance.

Luckily, there is an answer. As a freelancer, you can purchase your own short-term or long-term disability insurance. Unfortunately, premiums are not tax deductible, and finding a policy for self-employed people can be a hassle. Yet, the peace of mind of knowing you'll be able to replace your income if you need to is worth every penny.

Young people

You might think disability insurance is something for older folks, but the best time to buy is when you're young. That's because premiums are generally cheaper for young, healthy individuals. In addition, if you keep the same policy and build a history with one insurance company, it will also offer you coverage and pricing not necessarily available to customers buying for the first time at age 40, 50, or 60.

Before you think disability insurance won't apply to you, think again. According to the Social Security Administration, one in four 20-year-olds will become disabled during their working years. You may still be in luck if you have a policy but don't need it. Some policies offer a return of premium provision. In short, you can get your premium back if you don't make any claims within a set time.

People with desk jobs

You may think the risk of becoming disabled is highest if you have a physically-demanding job. Slips, falls, and other workplace accidents account for billions in lost wages, productivity, and medical bills. But the truth is most disability claims have nothing to do with work-related injuries or accidents.

Instead, people use their disability insurance when they're dealing with illness. Cancer, heart disease, back injuries, and other illnesses are some of the most common reasons for disability claims, according to the Council for Disability Awareness.

People with healthy savings

Like me, you might think your emergency savings could cover expenses if you could not work. But that's not a surefire bet. Traditional wisdom tells people to keep enough savings to cover three to six months of expenses (although most Americans don't have that much saved). If you have savings, you might not need short-term disability insurance.

You probably still want long-term disability insurance. The average claim for long-term disability insurance is 34 months, according to the Council for Disability Awareness. Even the super-savers among us are unlikely to have three years of expenses saved up. If you become permanently disabled, government payments may not cover your bills as effectively as you might hope. You could accrue a lot of debt before government disability coverage kicks without disability insurance, leaving you with no way to catch up. Some states also allow workers to collect disability insurance payments if permanently disabled until retirement age.

People living paycheck-to-paycheck

The savers need disability insurance, but so too do people living paycheck-to-paycheck. If you're strapped for cash, any time off work could spiral you into debt. Investing in disability insurance, which usually costs 1-3% of your annual income, is an affordable way to create a financial safety net for you and your family.

None of us like to think about becoming disabled, temporarily or permanently. But the truth is 43% of people over 40 will experience an event that leaves them unable to work for 90 days or more by age 65. With those odds, disability insurance suddenly looks less like an extra cost and more like a must-have.