Disability and long term care insurance | Insurance | Financial literacy | Khan Academy

Talking about insurance is never a lot of fun because you're talking about thinking, or you're thinking about things that most of us don't want to have to deal with in life. I'm going to continue that trend by talking about two new scenarios of insurance, and that's disability insurance and that's long-term care insurance. Sometimes those two get confused.

Disability is a situation where if for whatever reason you become disabled and you're not able to work anymore, how are you going to support yourself and support your family? You are going to need some form of income, and so that's what disability insurance is all about. You pay the premium and for whatever reason you're not able to work because you've lost your ability to work, it can't just be, "I don't feel like working." But if the insurers say, "Okay, that's what was covered," that was one of the scenarios, you are no longer in a position to do that job; then that will cover your income up to some amount depending on what the actual policy said.

Now, long-term care could be related to it or it might not be. Above and beyond lost income, if you have some type of an accident or disease that makes you, um, not able to work anymore, you might have significant medical expenses. You might have to, uh, I mean, these are situations that none of us want to see happen, but you might have an extended stay in a hospital, which can be very, very, very expensive.

Even if you are able to maintain your income because of some kind of disability insurance or have some income, it might not be your full income. Because of the disability insurance, you now have a much bigger expense because of all these hospital expenses, and that's what that long-term care insurance is all about. It's not just for older people; it could be.

And I keep saying this is a situation none of us want to be in where you get into an accident and you have an extended stay in the hospital. It can cover that. So, in some cases, employers will provide these types of insurances, but they're oftentimes not enough coverage to fully protect you.

So, if you're worried about these and if you don't have savings that can provide you and your family a cushion if one of these pretty horrible things happen to you, you might want to think about disability insurance and/or long-term care insurance.