Financial expert Dave Ramsey, known for advising against carrying debt, has also given recommendations about disability insurance. According to the Ramsey philosophy, disability insurance is one of the most important types of coverage you can have.
Dave Ramsey on disability insurance
Personal finance expert and radio personality Dave Ramsey lists disability insurance as one of insurance products you shouldn’t go without (the others are auto insurance, health insurance, life insurance, home or renters insurance, long-term care insurance, identity theft protection, and umbrella coverage).
Ramsey recommends that everyone get disability insurance “regardless of the job you have,” but says to make sure not to get any insurance coverage that you can’t afford. You don’t want to purchase coverage you can’t pay for and have it canceled when you fall behind on your payments.
→ Read answers to questions you might have about disability insurance
1. It’s worth having long-term instead of short-term disability insurance
Actually, a guide published online by Dave Ramsey’s company Ramsey Solutions calls long-term disability insurance the only type of disability insurance worth buying. Since short-term disability insurance costs the same but only covers you for a few months, it’s only worth having if you get it for free from work. Ramsey’s company recommends having a strong emergency fund instead.
→ Read more about how short-term disability insurance probably isn’t worth it
2. Build your savings so you can decrease your coverage
It’s a good idea to start with enough disability insurance to cover at least 60% to 70% of your after-tax income. The Ramey-approved recommendation is to work on paying off your debts and building your savings and, then once you’re older and more financially secure, decrease your disability coverage so you’re not paying for more than you need.
3. Make sure your policy will cover you long enough
You should get a policy that will cover you while you’re out of work for at least 5 years, according to Dave Ramsey . If you’re out of work for less than 5 years, you can rely on your emergency fund instead of getting a long-term policy with a shorter benefits period.
4. You may not need to add any riders to your policy
Generally, Ramsey recommends against getting any disability insurance riders (coverage add-ons) that you don’t need. While some people need certain riders, others simply seek out the most comprehensive policy they can, which usually costs a lot and includes more coverage than they really need.
Frequently asked questions
Is long-term disability insurance the same as long-term care insurance?
No. Dave Ramsey recommends both types of coverage, but they’re not the same. Disability insurance covers your income if you can’t work because of an injury or illness. Long-term care insurance covers home-health care, nursing homes, and other services for older adults.
Do you need disability insurance if you have a policy through work?
Yes, you probably need your own disability insurance policy even if you already have coverage through work. An employer-provided policy may have only limited, short-term coverage that won’t cover you if you’re out of work for years.
Do you need disability insurance if you have life insurance?
Yes, disability insurance replaces your income if you can’t work while you’re alive. Life insurance, on the other hand, pays your family or other beneficiaries after you die.
