What is it?
Disability insurance replaces a portion of employee income when they can’t work because of an illness or disability.
When you’re healthy and working, it’s hard to imagine being disabled by illness or injury. What would happen if your paychecks suddenly stopped because you were too sick or injured to work? What if you couldn’t work for months — or years? You’d still have to pay all your monthly bills, including food, utilities, house and car payments. Add in things like tuition and retirement funding, and it’s easy to see how savings could quickly disappear. Unfortunately, you can’t always rely on other income sources like Social Security to protect you. In many cases, they don’t apply — or aren’t enough. Consider the following:
- 1/3 of all people between the ages of 30 and 64 will become disabled sometime in their lives (Source: Health Insurance Association of America)
- In the 1st year following a paraplegia, living expenses average $259,531 per person (Source: National SCI Statistical Center, 2005)
- The likelihood of being disabled for more than 3 months is greater than dying in any given year (Source: Society of Actuaries)
Becoming disabled can have devastating financial implications by stripping you of your ability to make a living. While some people can get by without working for a few months by tapping into their savings, few people can afford to stop working altogether for an extended period of time. Disability Insurance is designed to insure your income. It can provide monthly income to help maintain your standard of living and keep your financial goals for the future intact.
Frequently Asked Questions
What are the types of Disability Insurance?
There are two general types of disability insurance policies. They are Short-Term Disability (STD) and Long-Term Disability (LTD). Short-Term Disability policies have a waiting period of typically 0-14 days before your income benefits begin and usually will only pay benefits for a maximum of two years. Long-Term Disability policies have a waiting period of several weeks to several months before your income benefits begin and benefits can be paid for a period of time ranging from 2 years to the rest of your life.
How much Disability Insurance can I get?
The amount of benefit you can purchase varies depending on the state in which you live and the type of policy you purchase. Disability Insurance policies purchased through an employer usually only allow you to insure up to 50% of your income. Disability Insurance policies purchased privately can often times allow you to insure up to 60% to 70% of your income.
If I become disabled, aren’t I already covered by Social Security?
Social Security disability payments are limited to disabilities expected to last at least 12 months or end in death. To qualify, you must be unable to engage in any type of work.
I have Disability Insurance through my employer. Is that enough coverage?
Disability Insurance through your employer can be a good method of obtaining adequate disability income coverage. This type of coverage can often times provide more affordable options. It is important however to understand some of the limitations with coverage through an employer. The following points are important to consider:
- Group Long Term Disability usually covers only a portion of an employee’s compensation
- Long Term Disability benefits are generally taxable if the employer pays the premiums
- Many plans do not cover bonus or incentive compensation
- Many plans do not allow you to continue coverage if you change employers
Your independent insurance agent at Diversify Insurance, Inc. can help you determine if Disability Insurance coverage through your employer is an adequate option.
How much are the premiums for Disability Insurance?
Disability premiums are based on your age, sex, occupation and the amount of potential lost income you are trying to protect. In general, the lower the chance that your occupation puts you in harm’s way, the lower the premium. The higher the chance of injury, the bigger the premium. So, for instance, an accountant working in an office would have much lower disability premiums than a construction worker.
Should I consider any “Riders” with my Disability Insurance?
Depending on your particular situation, certain riders may be suitable for your Disability Insurance policy. Some of the more common riders are listed below:
This means the policy cannot be canceled by the insurance company, except for nonpayment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
- Guaranteed Renewable:
This gives you the right to renew the policy with the same benefits and not have the policy canceled by the company. However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.
- Coordination of Benefits:
The amount of benefits you receive from your insurance company is dependent on other benefits you receive because of your disability. Your policy specifies a target amount you will receive from all the policies combined, so this policy will make up the difference not paid by other policies.
- Cost of Living Adjustment (COLA):
The COLA increases your disability benefits over time based on the increased cost of living measured by the Consumer Price Index. You will pay a higher premium if you select the COLA.
- Residual or Partial Disability Rider:
This provision allows you to return to work part-time, collect part of your salary and receive a partial disability payment if you are still partially disabled.
- Return of Premium:
This provision requires the insurance company to refund part of your premium if no claims are made for a specific period of time declared in the policy.
- Waiver of Premium Provision:
This clause means that you do not have to pay premiums on the policy after you’re disabled for 90 days.
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