Disability insurance is one of the most misunderstood insurance products on the market today, which is why so few people who need this coverage have it. However, choosing a disability insurance policy could be the most important decision you can make for your family. Why? Because disability insurance protects your ability to earn income if you become mentally or physically unable to work due to accident, sickness or injury.
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How does Disability Income INSURANCE WORK?
If you depend on the income you receive through work to pay your expenses, then you should probably consider disability insurance. Just like with your home, auto, and health insurance, you pay a monthly cost for income protection. If you get seriously ill or hurt and can’t work, Disability Income insurance acts as your financial back-up plan. It lets you focus on taking care of yourself, instead of worrying about how you’ll pay the bills. In addition to covering your everyday living expenses, it also protects your overall financial health by helping you avoid dipping into your savings or retirement assets.
DO I REALLY NEED DISABILITY INSURANCE?
“I’m healthy and active – why do I need it?”
If protecting your income is a necessity, and being without it could have serious financial consequences, then the answer is YES!
Accidents happen. We can’t always anticipate if or when we’ll be diagnosed with an unexpected illness, condition, or injury. These are just a few examples of why it’s important to have disability income insurance that will help you pay your bills in the event you can’t collect your normal paycheck from work.
- 95% of accidents are non-work related. Meaning you will not be covered by workers compensation, according to the Council for Disability Awareness.
- According to the Social Security Administration, a little over 1 in 4 young people, in their 20’s, will become disabled before the age of retirement.
TYPES OF DISABILITY INSURANCE
Group Disability Insurance is a single insurance policy that’s offered to a defined group, most commonly to employees of the same company or organization. Your employer holds the policy, and you can opt-in to coverage.
Premiums are paid through payroll deductions, making it easy to enroll and administer. And, since the insurance is based on a group, it’s usually cheaper, because the policy underwriting doesn’t account for things like individual health issues or personal factors, like age.
Unfortunately, group coverage generally ends when your employment ends, or shortly thereafter.
Short-term benefits typically kick-in after your sick pay runs out, while long-term benefits can cover a chronic or permanent disability. In both cases, there is typically a waiting period before you can start receiving benefits. This depends on the specifics within the policy.
Short-Term Disability policies – have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years.
Long-Term Disability policies – have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life.
Individual Disability Insurance is a private insurance contract that’s based on your individual situation. You purchase a policy to help reduce gaps left by social security, group disability insurance or if group disability insurance is not available.
Individual policies can be customized to fit your needs and can vary in the benefits they provide.
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.
ADDITIONAL PURCHASE OPTIONS
Your insurance company gives you the right to buy additional insurance at a later date.
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.
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.
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.
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.