There’s much intrigue concerning how others handle and deal with daily risks. We are sure to insure our health, our home, our vehicle, our life, but too often we forget about protecting our ability to provide an income. We often typically forget Disability Insurance is available.
Many of us regard our dwelling as the most important asset we possess, and we are sure to protect it at all costs. But what about your ability to earn an income? Wouldn’t that be your most important asset to protect?
Do you honestly think that social security disability benefits are going to adequately replace your existing income without having to fight for it? The bottom line is, if you receive a paycheck from your employer or your business, you are going to want to purchase disability insurance.
Although disability insurance can be confusing, there are several types of coverage, as well as options available, and we are here to help you with choosing the best policy for your needs.
What is Disability Insurance and Why Should I Buy It?
Designed to assist the worker financially, in the event that they cannot work or become disabled, disability insurance is typically paid out monthly. However, disability insurance benefits will not completely replace the lost income. The benefits are tax-free and are generally ample enough to prevent the policyholder from borrowing from family and friends or from filing bankruptcy.
Considering that there are different types of coverage depending on individual needs, we will be discussing the specific qualifiers that decide the benefits, such as occupation or own occupation.
While disabled workers do have Social Security Disability benefits available, it may take up to a year or more in order to obtain approval. Often, applicants have to involve an attorney in their case to access these benefits.
However, if you believe the government has your best interest in mind when it comes to your individual financial needs, there’s no need to continue reading from this point. But, if you’re on the fence about trusting the government completely with your livelihood, then it would be wise to read on.
What types of Disability Insurance are there?
There are primarily two types of Disability Insurance, long-term and short-term disability, with their differences being noted in their names. Even though both types are offered by most employers, individuals and self-employed persons generally require long-term disability insurance.
Long-term disability insurance benefits usually begin paying once other available benefits have been exhausted. While it often takes long-term disability insurance benefits three to six months to start providing coverage, employees usually have some sort of short-term coverage, such as vacation days, “Paid Time Off,” or sick leave, available through their employer to keep them afloat in the meantime.
According to the Council for Disability Awareness, one in four workers within their twenties will experience a disability at some point during their working history. In fact, the average duration of most disabilities is nearly three years, making long-term disability insurance that much more critical.
So, unless you have access to plenty of liquid assets, not having some sort of disability insurance coverage is ill-advised.
For employees that experience a disability lasting just a few months, short-term disability insurance is a wise decision, especially given that most policies pay out for six months to a year. Short-term insurance includes a waiting period, known as the elimination period, which typically lasts just a couple of weeks.
Group health benefits provided by most employers usually include short-term disability insurance, while long-term disability insurance is typically not provided. In the event that the insured is partially disabled, working light-duty, or unable to work a full schedule, most short-term disability coverage pays a percentage of the benefit for the policyholder.
Long-Term versus Short-Term Disability Insurance
|Long-term disability coverage||Short-term disability coverage|
|Generally replaces 40% to 60% of a worker’s income.||Generally replaces 60% to 70% of a worker’s income.|
|Benefits are payable while the insured is disabled for the number of years selected or until age 65 or retirement.||Benefits are payable from a few months to a year.|
|The waiting period before benefits are payable is generally 90 days or more.||The waiting period to receive benefits can be as little as two or three weeks.|
Disability Insurance Features and Riders
Depending on the disability insurance provider, different policy provisions will be available, so it’s important to understand precisely what is and is not in your policy before signing off on it. Most of the features mentioned are available with better disability insurance policies, however, if a feature is missing, often it can be added to the policy as a rider.
- Own occupation or any occupation – It’s imperative to understand this wording in your policy. Own occupation means that you are prevented from doing the job you are qualified for due to your disability, whereas any occupation means that if there’s any work that you CAN do, you will not be considered disabled.
- Elimination Period – This is the period of time once your claim is approved that your benefits start. This period directly affects your premium payment. The longer the elimination period, the lower your cost of disability insurance.
- Capital Sum Benefit – This lump sum benefit is paid for certain illnesses or injuries that result in the loss of a hand or foot or the loss of eyesight in at least one eye. Usually, about twelve times the monthly benefit, the Capital Sum Benefit also pays on top of other benefits within the policy.
- Exclusions & Limitations – This represents the causes of disability that are usually not payable, for instance, with pre-existing conditions. The Limitations refers to the limitations in benefit that are a result of specific disabilities.
- Rehabilitation Benefit – This benefit pays for a rehabilitation program that will assist you in getting back to work.
- Waiver of Premium – This rider allows the insurance provider to waive your disability insurance premium in the event that you have been disabled for the elimination period or for 90 days. Once your benefits have ceased, many companies will waive your premium payment as well.
- Residual Disability Benefit – If the policyholder becomes partially disabled, this rider allows for the insurer to pay a partial benefit.
- Renewability Provisions – As long as your premiums are paid, this provision governs whether your policy is renewable every year. See the terms for Noncancelable and Guaranteed Renewable.
- Transplant and Cosmetic Surgery – This benefit grants the insurer the ability to pay benefits in the event that the insured undergoes surgery to correct a disfigurement or to improve appearance, or if the insured donates a transplantable organ.
The Bottom Line
While we know that it’s important to insure your home, car, boat, health, and your life, it’s no doubt that the most important thing to insure is your ability to earn an income. Unfortunately, there are many individuals that haven’t considered disability insurance coverage until it’s too late.
The risk of disability from an illness or injury is much higher than the risk of death during your employment. It is due to this risk that we strongly advise that you consider disability insurance today.