What would happen if you became seriously ill or suffered a major injury?
Maybe your medical bills would be covered, but how would you pay monthly bills (mortgage, rent, food, etc.)?
We live in a world full of risk. There are essentially two options for dealing with these risks: prevention and insurance. It would be nice if we could prevent anything bad from occurring. We would never have to worry about a child getting injured, our house burning down or suffering a long-term illness or injury.
Complying with state licensing regulations, installing smoke detectors and taking care of your health are all ways to prevent some of the previously mentioned from occurring. However, you may not be able to prevent the fire started by faulty wiring in your home or a severe back injury.
Most providers rely on their business income. Being a provider, however, is difficult work. The hours are long and the job is physically demanding. The chances of suffering a back, knee or hip injury are high. I have heard from providers who have suffered such injuries and spent months recuperating. One provider required a year to recover before returning to her business after hip replacement surgery. By the time she returned, most of her clients had found other child care and didn’t come back to her.
What is Disability Income Insurance?
Disability income insurance replaces part of your lost income if you are unable to work because of any injury or illness. You can purchase short-term or long-term insurance. I recommend purchasing long-term, not short-term insurance.
Short-term insurance will cover you right away if you cannot work, but the cost is very expensive. Most providers have some savings or can get help from their family if they could not work for up to six months.
A long-term disability typically starts covering your after you have been unable to work for six-twelve months.
The benefit amount you would receive is based on your net income. This is the revenue from your business minus all of your expenses. For many providers, this number can be low because of the many deductions claimed.
Let’s say a provider generated $38,000 of revenue between parent fees and the food program reimbursement. Her business expenses totaled $16,000. Therefore, her net income would be $22,000. Disability income policies don’t replace the full amount of the insured’s income because if they did, no one would have much incentive to go back to work.
Most of the policies available to providers would replace up to 50% of their net income. In this example, the provider would receive a monthly benefit of $916 ($22,000 x 50% = $11,000 divided by 12 months = $916). This is not a lot, but it would certainly help in paying monthly bills.
The price of the disability income policy is based on your personal circumstances such as age, income, health, and type of work. For example, a provider who is 60 years old will generally pay more than a provider who is 25 years old. Also, the disability income insurance company could deny your application because of something in your health history.
If a disability income insurance company declines to insure you, there are some things that you can do to reduce your risk by reducing the chances of illness and injury. Be cautious of your back when lifting children, have regular medical checkups, eat healthy food and exercise regularly.
In addition, have an emergency fund in the event that you would be unable to work. A good rule of thumb is to have 3-6 months’ living expenses set aside. However, you may feel that you would need more than this. Ask yourself what would you do if you couldn’t work for an extended period. How would you pay your bills?
Between an emergency fund and a long-term disability insurance policy, you will have gone a long way to reduce the risk of a serious illness or injury.
If you find that purchasing disability income insurance to be too expensive for you, check out the cost of getting workers compensation insurance (ask your business liability insurance agent). Workers compensation insurance covers you for injuries suffered while working. It usually includes some disability income coverage. It’s not equivalent to disability income insurance because it only covers for injuries, not medical illnesses, but it’s better than nothing.
This article was modified from an article first written by Mari Millard and published by Resources for Child Caring (www.thinksmall.com). See also their publishing division Redleaf Press (www.redleafpress.org).
Tom Copeland – www.tomcopelandblog.com
Image credit: www.easihr.com
For more information about disability insurance and other types of insurance, see my book Family Child Care Legal & Insurance Guide.