A recent study published by Breeze gauged the financial impact that eight weeks of unpaid maternity leave can have on people in the U.S.
1,001 actively-employed women between the ages of 18 and 44 were surveyed. The prevailing theme after analyzing the data? Eight weeks of unpaid maternity leave would cause damage to personal finances. For example, 74% of women who responded didn’t believe they would have any cash savings left in their bank account after two months of unpaid maternity leave.
When asked how else they would cover the high costs associated with a newborn, 56% would consider taking on an “uncomfortable amount” of credit card debt. Another 54% would look into taking out a personal loan. 54% would consider drawing from one of their more-active daily investment accounts to cover their maternity leave expenses. And 49% said they would think about drawing from a retirement account to cover costs.
The highest percentage of women who responded answered with a “10” when asked to judge the potential financial setback from 8 weeks of unpaid maternity leave on a scale from one (no setback) to 10 (major, possibly permanent setback). The average answer was seven.
This series of data points is not surprising considering the U.S. is one of only a few countries without a federal paid maternity leave policy and just 19% of employees get paid leave through their employers, there’s not much in the form of financial assistance if you don’t know where to look.
There’s a potentially helpful financial safety net for pregnancy and unpaid maternity leave. Short-term disability insurance, but the study found many people are unaware of this product.
When respondents were asked if they’ve considered taking out short-term disability insurance as a way to protect their finances against unpaid maternity leave, just 38% answered “yes” while 62% answered “no.”
Amongst those who hadn’t considered the product, 42% did not know what short-term disability insurance was. This group was then given the definition of short-term disability insurance, and 81% then said they would consider purchasing it.
The data shows more women would be interested in taking out short-term disability insurance if they knew what it was and the purpose it served. Short-term disability insurance replaces a portion of a policyholder’s weekly income – sometimes up to 60% – for qualifying disabilities that leave them unable to work and earn a living.
Qualifying disabilities can be physical injuries like broken hands, medical illnesses, or mental health struggles like anxiety.
It can be a way to keep some income flowing in while on unpaid maternity leave for eight weeks or even longer. The benefit money can be used on any of life’s expenses, like rent payments or groceries or doctor visits.
LIMRA found that “pregnancy” is the most commonly-cited reason for short-term disability insurance claims.
It is important to note that short-term disability insurance is not a uniform solution to prepare for unpaid maternity leave. Not all short-term disability insurance products cover maternity leave or pregnancy. Sometimes coverage is dependent on other qualifying circumstances like needing extra time to recover from a pregnancy complication.
Additionally, a consumer will almost always have to take out short-term disability insurance before they are pregnant for it to cover pregnancy. If taken out while pregnant, the pregnancy will get counted as a pre-existing condition and not trigger a benefits payout.
With the two above paragraphs in mind, be sure to read the fine print and ask questions about short-term disability insurance before relying on it for pregnancy and unpaid maternity leave. If a short-term disability product does in fact cover pregnancy, it can certainly be incredibly effective in helping people stay financially afloat during those first couple of months