Did you know that a 20-year-old has a 1 in 4 chance of not being able to work because of a permanent or temporary disability at some point before they retire? If you weren’t able to work, not only would you be struggling to take care of your rent, buy food, cover your car payment, and pay off other debt, but you would also have to put your student loans into deferral or forbearance, or keep paying them out of your dwindling savings.
That’s why it’s important to protect yourself against the possibility you’ll get sick or injured by getting long-term disability insurance.
What is Long-Term Disability Insurance?
Long-term disability insurance is a type of insurance that protects you in case something happens to you that keeps you from being able to work – like if you get into a car accident or get diagnosed with cancer and need treatment. Long-term disability insurance replaces up to 60% of your income, which helps you cover your daily expenses, as well as any student loan debt.
There’s also an option of adding a student loan disability rider to your policy for additional monetary benefits. Coverage via a student loan disability rider can start at a few hundred dollars per month and is often capped at $2,000-$2,500 a month on top of your other disability benefits. Its set up so that the payment goes directly to your loan servicer. It is often incredibly affordable to add to your existing long-term disability policy and starts at as little as $5 per month.
Why You Need Long-Term Disability Coverage
There are a number reasons why it’s incredibly important to get long-term disability coverage. The first is that you likely have a significant amount of student loans. If you are like the average American borrower, you have around $27,000 in student debt – but many people have significantly more debt than that. For example, professionals who went on to get additional education like dentists, doctors, lawyers, and MBA grads can have six figure debt loads. That level of student debt means high monthly payments and if something were to happen to your health, you could get significantly behind if you have to put your loans into forbearance or deferral as the interest continues to mount during those periods.
Another reason why it’s critical to get long-term disability insurance to cover your student loan debt is that most people often don’t make give me very much in the first years after graduation. You might be underemployed or working in a low paying job that is a stepping stone in your career. This means that it’s likely quite difficult to save up in emergency fund in order to cover your student loans payments for a few months in case something happens. If something happens you don’t have savings to fall back on.
Another thing to consider is that 90% of private student loan borrowers have co-signers on their student loans. If you have a co-signer, getting long-term disability insurance will help ensure that no matter what happens to you, your co-signer will never have to pay for your loans. You might even want to talk to your co-signer about coverage as they might be willing to help you pay the premiums.
Another benefit of getting long-term disability when you’re young and still repaying your student loans is that it’s a lot cheaper if you get it at that age. For one thing, you’re making less money so you don’t have to buy as much coverage to replace your income. But you’re also a lot healthier when you’re younger and so you’re more likely to get approved and lock in a good rate.
How to Get Long-Term Disability Coverage
Getting long-term disability coverage for your student loans is relatively easy. Most young people just out of college can qualify for affordable disability insurance so long as they don’t have any serious health problems like diabetes or dangerous behaviours like smoking or drug usage that increase their risk. Make sure to ask a potential insurer if they offer a student loan rider before signing up. Also, if your employer offers a disability policy, be sure to read the fine print. It might not be enough to cover your expenses if something happens to you. You might want to get additional coverage to protect yourself.
What If You’re Permanently Disabled?
If you’re permanently disabled, you should be able to apply to have your federal loans discharged through a total or permanent disability discharge. Total or permanent disability refers to a situation in which you are likely to never be able to resume work. The government is very strict about what qualifies as a disability worthy of a student loan discharge, so that’s why it’s critical to also protect yourself with disability insurance.
Author: Jeff Gitlen
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