Most employed nurse practitioners are offered short term and long-term disability insurance policies as part of their benefits package when they work for someone else. On the other side of the coin, a self-employed nurse practitioner also might decide to purchase short-term and long-term disability policies for themselves to mitigate any future interruptions with their business due to a medical issue. Either way, I would bet the majority of nurse practitioners reading this have a disability insurance policy. But do you actually need one?
Yes and no.
Disability insurance is a hedge against the uncertainty of not being able to work due to a health issue. We all work in healthcare, so we know bad things happen to good people. You could get into a motor vehicle accident, develop cancer, have a stroke, or a thousand other medical problems could arise. Because of that, it is wise to have a policy.
Listen, you do not need a short-term disability insurance policy if you have an emergency fund or any kind of savings that could keep you afloat for a short period of time.
Short term disability policies typically take 2 weeks to take effect and then they only pay out 40-70% of your salary for 3-12 months depending on the insurance company and type of policy you have. While this sounds great, you need to run the math to determine if this is worth the expensive monthly premiums or not. Short term disability will cost you 1-3% of your annual income split into monthly payments… So, it is not cheap.
I want you to ask yourself 2 questions to determine if short term disability is worth it or not for you:
- How much do I need to survive for 3, 6, or 12 months?
- How much do I have saved, and will this allow me to live for 3, 6, or 12 months?
Essentially, how much do you need to save up to continue your way of life for an extended period of time? This is called your emergency fund, and everyone needs one. If you don’t have one, be sure to read that article HERE. Having an emergency fund is a CRITICAL foundational principle for a nurse practitioner financial independence plan.
If you have enough savings to sustain yourself for 3 months or more, then skip short term disability. It is not worth the cost because by the time your emergency funds are liquidated, your long-term disability insurance would kick in.
EVERY NURSE PRACTITIONER should have long term disability insurance. It is stupid not to. Why? Because these policies will pay you 40-60% of your annual salary for 5 years or longer depending on how long your disability lasts for. THIS is a solid policy to have and will mitigate any significant interruptions to your way of life, especially if you are living below your means to begin with.
Long term disability costs 1-3% of your annual income split into monthly premiums as well. Long term disability usually kicks in 3-6 months after the disabling event; therefore, it is critical to have that 3-6 month emergency fund to fill in the gap if something was to happen.
Don’t waste your money on short-term disability, instead, focus on building your emergency fund to get you through the period between becoming disabled and where your long-term disability insurance kicks in. This is the most advantageous way to set up your “disability plan” and you will save yourself $1000+ a year in short-term disability premiums. That is a lot of money over the span of your career!