Disability insurance protects one of your most important assets: your ability to work and earn a living. It pays you when you are disabled, whether due to an injury, illness or medical condition, and, as a result, unable to work. Disability insurance is designed to replace lost income and help you pay your bills. It is different from health insurance, which is designed to cover your medical costs.
Who provides disability insurance?
Your employer's group plan. The only states that currently provide or require that employers provide short-term disability insurance (up to 26 weeks) are California, Hawaii, New Jersey, New York and Rhode Island. In California, benefits are paid for up to 52 weeks. But most employers in all states offer short-term disability insurance. Many employers also offer long-term disability insurance, with benefits typically up to 60% of your normal salary and lasting from five years up to retirement age. Long-term disability benefits start when the short-term benefits end.
Social Security. Social Security is the safety net that protects everyone who has been working long enough and paying Social Security taxes, but the requirements are very strict. You are entitled to benefits when you are unable to engage in any type of substantial gainful activity due to a physical or mental impairment that can be expected to result in death or impairment for at least 12 months. You may qualify for monthly Social Security disability benefits before reaching age 65. When you reach age 65 the disability benefits generally stop and retirement benefits begin.
Other insurance policies. These may pay benefits while you are disabled. Examples include workers compensation, when the injury or illness is work related; auto insurance when the disability results from an auto accident or disability insurance provided by the Department of Veterans Affairs.
Rules for claims and coverage
Different policies can have different definitions of disability. Some plans pay benefits when you are unable to perform the duties of your own occupation while others pay only if you are unable to perform any job.
There is a waiting period, sometimes called the elimination period. For short-term disability, this is typically 14 days or less. Long-term disability waiting periods could range from several weeks to several months.
When you file a claim for disability benefits, you need to provide written proof of your disability. The insurer may require medical records from your doctor and may want you to undergo a medical exam at their cost.
Do you need your own disability insurance?
If you are self-employed, you should definitely consider disability insurance. If you become disabled, you will have to rely on Social Security, with its strict rules on what constitutes a disability.
If your employer does not provide disability insurance or you work in a higher-risk occupation, such as construction, you should consider a private policy. Even if your employer offers disability insurance, if you have your own policy you can take it with you when you change jobs, and you may get a higher level of coverage than what an employer can provide.
If your coverage at work pays benefits as a percentage of your base salary and you earn a significant portion of your income as bonuses or commissions, or the policy has a monthly or annual cap, you should consider a private disability insurance policy to cover the difference between your base pay and your take-home pay.
Selecting disability insurance
When you're getting quotes for disability insurance, be sure to understand what constitutes a disability according to the policy. Some policies pay benefits if you are unable to work in your own occupation. These are generally more expensive. Other policies pay only if you are unable to work in any type of job according to your education and experience.
Think about the benefit period. You should generally have disability insurance that will pay you benefits until you reach retirement age, when Social Security benefits kick in. The benefit period for a short-term disability policy may run out before you are able to return to work.
What percentage of your income do you want the disability insurance policy to replace? According to the Insurance Information Institute, 60% to 70% of your take-home pay is a reasonable amount. The higher the percentage you want to replace, the more expensive the policy, so you should evaluate other sources of income you may have and estimate your monthly expenses.
A shorter waiting period normally makes the disability insurance more expensive. You should think about how long you could wait without seriously straining your finances.
A non-cancelable policy allows you to renew the policy each year without an increase in your premium or a reduction in your benefits. This is a little different from a guaranteed renewable disability insurance policy, where you can renew the policy with the same benefits but the insurer can increase your premiums.
The cost of disability insurance is based on your age, sex, occupation and the percentage of income you want to protect. Certain occupations, such as construction, involve a higher risk and, therefore, a higher premium.
You should consider whether the disability insurance has a cost-of-living adjustment. Inflation can eat away at what may seem reasonable today.
You may have the option to purchase more coverage later on as your level of income increases without having to provide proof of medical insurability. This can be important if you develop a medical condition that could prevent you from getting disability insurance otherwise.
The policy could have a residual or partial disability rider. This allows you to return to work part time, collect part of your salary and receive a partial disability payment. You could have a return of premium provision, in which the disability insurance company would refund part of your premium if you don't file any claims for a certain period of time. A waiver of premium provision means you don't have to continue to pay premiums on the policy after you've been disabled for 90 days.
 | At its simplest, long-term disability insurance is exactly how it sounds; it issues payments in the event of a serious injury or illness. However, long-term disability insurance policies have many exceptions that govern the policy, so it's important to shop around for the right policy and read the details closely. |
 | For those who suddenly find themselves disabled, some government programs can help you out, such as Social Security disability insurance. However, not just anyone can qualify, as there are certain conditions that must be met. |
No one ever wants to consider the possibility of tragedy; this is why less than 50% of Americans hold life insurance policies. Although it might be prudent to prepare for any possible eventuality, we don't want to think about what might happen if we are injured or killed. |&&|Individual disability insurance is one way in which people can prepare for their futures. |
It is true that we do not know what tomorrow may hold. One day we may be perfectly healthy, and working, then suddenly encounter an illness. If you finances would be adversely affected if you became sick, then considering carrying disability insurance may be a good thing to do. Disability insurance would take over in the event that you were to get ill and be unable to work. |
When you think about making money, you probably focus on increasing your paycheck via raise negotiations, bonuses and new job opportunities. But while increasing earning potential is important, it's equally vital to safeguard the income you're currently making. |
