What You Can Do If You Do Not Have A Rainy Day Fund


OpinionNext month is “National Disability Insurance Awareness Month.”  It is also “National Stroke Awareness Month.”

May is an arbitrary month in which the insurance industry focuses its marketing attention on Disability Income insurance.

To be honest, I am not that impressed with “National (name your cause) Month.”

Heart attacks are not unique to February, strokes are not limited to May, and prostate cancer is not found only during September.  All of these debilitating diseases, along with hundreds of more conditions, happen throughout the year to good people.

In this post I want to share with you a potential problem you might have if one of these conditions happen to you along with an inexpensive solution.  If you consider yourself a middle-class American, do not have at least 7 months of income in your Rainy Day savings and plan to rely on the federal government to help you if you suffer from a debilitating illness, read on.

However, if you already qualify for Medicaid or have 6 months worth of income in savings stop reading here.  The rest of this post has information that would bore you.  Go on and read the next blog in your daily routine.

Social Security anticipates that for every 10 workers over 20. 3 will suffer a disability that lasts at least 90 days at sometime during their careers.  When that happens, they have a problem if they do not have sufficient savings in their Rainy Day fund.

During the Health Care Reform debates of 2009-2010, President Obama and his Democratic supporters in congress seared into the American conscience a picture of a middle-class American being forced to file for bankruptcy even though he had health insurance.  Unfortunately, the entire picture was not painted.

When that happens, it is not always because the person is not able to pay his medical bills.  His health insurance does that.  The bankruptcy is because the sick individual is not able to pay his other bills, like his mortgage, car payment, credit cards, etc. with the money that is left over after the medical bills have been paid.

Since health insurance does not pay those types of bills, it is so very important for people to be able to dip into a “Rainy Day” savings fund to pay those bills and maintain their standard of living.  Unfortunately, not every middle-class American has been able to save enough money to pay the bills for 7 months.

WHY 7 MONTHS?

You could (and should) ask, “Why 7 months?”  There is a specific reason why I suggest that you save 7 months worth of income.

The first paragraph of the Social Security’s Disability Income  (SSDI) web site reads, “If your application is approved, your first Social Security benefit will be paid for the sixth full month after the date we find that your disability began.”

Furthermore, depending on when your disability started you could find payment from Social Security Disability Income delayed by at least another month.  Here is an example that is taken directly from the publication that Social Security Disability Income sends to everyone who has been approved for benefits.

“If the state agency decides your disability began on January 15, your first disability benefit will be paid for the month of July. Social Security benefits are paid in the month following the month for which they are due, so you will receive your July benefit in August.”

As you can see, at the minimum, it could take as long as 7 months before you start getting any payments from the government.  That assumes that your disability claim is approved in a timely fashion.  If it is not, although your benefits will be paid retroactively to a date 6 months after your disability began, you will not get any benefits until after your state agency has approved your claim.    (The claims process is a topic for another day.)

WHAT ARE MY OPTIONS?

Ideally, you have 7 months worth of income saved in your Rainy Day account that you can use while you recover.  However, when the average American has less than $90,000 saved for retirement, I know that there are millions of middle-class Americans who do not have sufficient savings.

If you do not have enough money to pay your regular bills on time, you have a couple of options.  You can rely on charities while you recover, take out a second mortgage or use private insurance until your Social Security Disability Insurance payments start.

If you elect to rely on others to help you make it until SSDI starts, you need to ask yourself what your community is like and would they help your family stay in your home.

If you elect to rely on a second mortgage, you need to make certain that you could get a line of credit while you are recovering.  If you are able to, you need to decide if you will be able to repay that loan after you return to work.

If you elect to use private insurance you will need to decide between two options.

Critical Illness

All Critical Illness policies pay cash directly to the insured if they are diagnosed with cancer, heart attack or stroke.  Many policies include extra illnesses, like early onset Alzheimers, accidental dismemberment, severe burns, etc.

If you do not have sufficient money in your Rainy Day account, these types of policies satisfy the first principle of insurance…

“Let the problem (cancer) that causes the problem (not enough money) solve the problem (paying bills).”

In other words, if you do not have enough money in your Rainy Day account, Critical Illness insurance will create a Rainy Day fund for you if you are diagnosed with a covered Critical Illness.

Critical Illness insurance is typically very affordable.  Several insurance companies offer this type of insurance.  Most of the require that you use an insurance agent to apply, however, the banner below allows you to quote and apply directly with a huge insurance company if that is what you want and you live in Texas.

Several insurance companies offer this type of affordable insurance.  Just be aware that it is very specific.  If you have had a parent or sibling experience a cancer, heart attack or stroke, I highly recommend this type of coverage to supplement your Essential Benefit Health Insurance Plan as a minimum form of protection.

Short Term Disability Income

There is another form of private insurance that you should consider if you want something that is more comprehensive.

When many people think about Disability Income insurance, they think about something with a benefit that last for years.  Anything with a benefit that lasts for longer than 2 years is called Long Term Disability Income insurance (LTDI).

While there is absolutely nothing wrong with LTDI, it can be quite expensive.  It is a fantastic option for people who are not comfortable relying on government programs to take care of them during a period of disability.

Those who are comfortable relying on Social Security Disability Insurance to take care of them but do not have a sufficient Rainy Day fund, should consider Short Term Disability Income insurance (STDI).

A STDI would create a flow of income that is more comprehensive than Critical Illness insurance.  It would allow you to pay your bills and maintain the lifestyle that you and your family enjoy until you start getting money from Social Security.

I recommend that you consider getting a plan that pays benefits for a full 12 months, in case there are any delays in you claim with Social Security but no fewer than 7 months worth of benefit if you have no savings.

STDI plans are significantly less expensive than LTDI.  (Recently, I compared rates for a 62 year old client.  The LTCI plan she had was costing her over $125 a month.  A STDI with a 2 year benefit was only $28 a month.) 

If you elect to use STDI, please remember while you are shopping for STDI that the fewer number of months the benefit is to be paid, the less the policy will cost.

As you can see, just because you have not been able to save enough money in a Rainy Day account, you do not have to panic if you get sick or hurt.  You just have to do a little bit of planning ahead of time.

There are supplements to your government mandated Essential Benefit Plans that the private insurance industry offers that will create a Rainy Day fund for you if the worst occurs.

However, since they are based on chance, you cannot wait until after you suffer an injury or illness.  You must obtain them while you are still healthy.

Building A Health Insurance Portfolio

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