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Your ability to work and earn income is probably your most valuable asset, which needs to be insured. Disability Insurance, or Disability Income Insurance, is an insurance product that provides you with a portion of income in case you become injured or sick, and as a result, unable to work and earn your salary. It helps protect you and your family against financial trouble and debts, and allows you to meet your daily expenses, pay your bills and maintain your current standard of living. Disability Income Insurance may replace some of your income, while you are recovering and getting ready to return to work.
You may be surprised to learn that the chances of your losing the ability to work at some point in your work life are rather high. According to statistics, one third of all Americans between 35 and 65 become disabled for over 90 days. Nearly one in five Americans can be disabled for a year or even longer before retirement. One in seven Americans will be disabled for over five years. The majority of long-term illnesses, which influence your ability to work, are heart disease and cancer, not necessarily injuries. There are many factors which determine the chances of becoming disabled before retirement: age, occupation, general health etc. Therefore, it is important to evaluate your needs for Disability Insurance and choose the right type and amount of disability coverage.
To cover any unexpected disability most workers rely on forms of disability income coverage provided by government and their employers: Social Security, or Worker’s Compensation and Unemployment Insurance. However, the maximum benefits from these types of disability income are rather limited and are most likely to be insufficient to keep up your normal standard of living.
Disability Insurance includes paid sick leave, short-term and long-term disability benefits. It can come in a form of employer-paid and government sponsored programs, which cover certain categories of workers and are usually cost-free, and also in private policies, which are paid for by the insured.
Getting hurt performing one’s duties at work is one of the common reasons for becoming disabled. This is the reason why Disability Insurance provided by employers to cover their employees is so important.
Workers’ Compensation offers payments to employees who are unable to work because of a job-related injury. It may also pay compensation for past and future economic loss, reimbursement or payment of medical expenses, general damages for pain and suffering, and benefits payable to the dependents of workers killed during employment.
Employer-paid policies offer payments to employees who are unable to work due to some injury or illness, it should not necessarily be job-related. They offer only basic coverage, and unlike Workers’ Compensation, this coverage does not involve aspects of Health Insurance, Life Insurance, or payments for pain and suffering.
Many mid- and large-sized firms provide Disability Insurance benefits that last for at least five years. It is important to find out if your employer offers Long-term Disability Insurance coverage and what it includes.
A typical policy from your employer will cover up to 60 percent of your income. However, it can be less, as most group plans have a benefit cap of $5,000 a month. They also tend to limit the amount of time during which the benefits are paid to two years. Note that the plan offered by your employer may not meet all your needs.
Short-term Disability Insurance starts as soon as you actually become unable to perform your duties because of an injury, illness, or the birth of a baby. Most employers will provide short-term coverage, ranging from a few days to one year. The length of your sick leave may depend on your record of service. Once your short-term disability benefits run out, Long-term Disability Insurance comes into play. However, there are no state laws that require employers to provide Long-term Disability Insurance. Long-term disability policies can vary considerably, and cheaper plans have very strict definitions of disability. It makes it very difficult to claim benefits over many years.
National social insurance programs in US include Social Security Disability Insurance and Supplemental Security Income. These programs are the safety net for people who can be either otherwise uninsured or underinsured. The benefits paid won’t be large but it is usually enough to prevent you from poverty.
In case you are not adequately covered at work, or not covered at all, you may want to purchase an individual Disability policy. There are different types of policies to choose from. When you consider purchasing an individual policy, pay attention to certain key elements of coverage and make sure you ask your insurance agent questions to clarify important things.
Figure out the definition of disability of the chosen policy: some policies will pay benefits if due to illness or injury you are unable to perform the duties of your customary occupation, while others will pay if you cannot get any employment at all. Mind that the injuries or illnesses that tend to make it impossible to perform your duties are usually different from the disabilities, which make it difficult to perform. Quite often one type of injuries may be covered while the other may not. See if the policy covers disabilities from both accidents and illnesses. Some policies may require that a person should be totally disabled before payments start, while others don’t require total disability before payment. Partial disability is often covered only for a limited time.
Find out how long you will be receiving your benefits and what percent of your current salary you will be able to receive. You can choose benefit terms for one year, two years, five years, up until age 67. Benefits typically stop around retirement age as this is the time when you are no longer dependent on the salaries you receive at work.
Monthly benefits are typically calculated based on the consumer’s income at the time of purchase. Supplemental plans and individual policies will often cover up to 70- 80 percent of your income, but no plan will cover all of your salary.
You can decide when exactly benefit payments will start by choosing a waiting period at the time of application. The waiting period may range from the 31st day to six months or more. If your savings allow waiting 90 days, or even as long as 6 months before you start to receive payments, your premiums will be reduced.
It is important to have your benefit amount adjusted for inflation, especially if the period of disability is rather lengthy. Consider adding a cost-of-living adjustment to your basic disability income coverage at an additional cost. It will increase benefit payouts by certain percentage (4-10 %), after each year of disability. Some policies allow purchasing additional disability coverage if you want to keep pace with a rising income. It won’t require passing a medical examination.
Find out if you can renew your policy without doing another medical exam. There are three major types of individual Long-term Disability policies: non-cancelable policy, when your premiums are fixed and the insurer cannot decrease your benefits, cancel or refuse to renew the policy; guaranteed renewable policy, when your premiums can be raised only if there is a raise in the entire category of policyholders or occupations; and conditionally renewable policies, when your premiums can be raised and your coverage can be canceled under specified conditions.
Figure out if you can get partial benefits if you can still work part-time. There can be instances when an individual is able to work but their income is reduced because it is difficult to carry on with all their duties and responsibilities. In this case, residual benefits can make up the difference in your income and allow partial payment based on your loss of income.
Before you purchase a Disability Insurance policy, ask how the income from this policy will affect Social Security, Workers’ Compensation or Unemployment benefits. Learn about the exclusions of the policy. Meet with several agents and compare policies and quotes. You should be well informed about all aspects of your future coverage. You should know what you are getting, since this is the type of insurance you and your family may depend on. Choose only a financially stable insurance company.
Disability Income Insurance will be helpful for business owners, professionals, full-time, part-time and home-based workers. If you are a breadwinner in the family, it is vitally important to insure the income you get. Consider supplementing the coverage you have from your employer or buying an individual policy to secure your main source of income. A comprehensive plan to rely on offers peace of mind and confidence in the future for you and your family.