Disability Insurance Overview
| Short Term Disability Insurance
| Long Term Disability Insurance
| What to Look for in a
Disability Plan
Here is an explanation of disability
insurance along with the benefits of owning a disability policy.
What is disability insurance?
How long could you maintain your
present living standards without your current income? For almost anyone who
works for a living, to be disabled and to be unable to earn an income, even
for a short time, can mean financial stress - and even disaster.
Disability income protection is designed to replace the income lost as a
result of disability from illness or accident by protecting your earnings
and your earning potential - perhaps your most valuable asset.
Why disability insurance?
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To guarantee income continuity in
the event of sickness or accident.
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To avoid a company having to fund
the continuing salary for a disabled employee longer than may be otherwise
desirable.
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To pay the expenses of the
business which would continue to be payable in the event of a principal
owners disability.
If you're like most people, you have
only two months savings in the bank as a protection against emergencies.
Even if you save ten percent of your income for ten years, it may take only
one year of mortgage payments and meeting other bills to devastate your
savings completely. Now the question is, what will you have to live on for
the next four years? Today, your income is doing a double job for you. It
provides for today's necessities and helps you save for tomorrow's hopes.
But if a disabling injury or illness strikes and you have no income, your
needs for the basic necessities will continue. You'll still be obligated to
meet the mortgage, car and credit card payments, as well as medical costs
not covered by your insurance. But plans for a comfortable retirement, the
children's education and a better life may have to be put off, if not
discarded altogether.
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According to the American Council of
Life Insurers, nearly one-third of all Americans will suffer a serious
disability between the ages of 35 and 65. Do you have disability insurance?
What is short term disability
coverage?
A short term disability plan would
pay a portion of your salary if you become disabled for a limited time. If
you become unable to work due to injury or sickness the disability plan
would kick in. A regular short term disability plan might provide you with a
weekly portion of salary ranging from 50-66% for 13-26 weeks. This is
excluding on the job injury.
You generally start receiving benefits from your policy within one to 14
days after sickness or disability. The actual time for coverage to kick in
depends on whether you suffer an illness or injury. If you suffer an injury,
your benefits will be paid immediately. If you suffer an illness, it will
take longer because there needs to be enough time to show disability.
Do I need disability insurance?
If you have enough in savings to
last until you go to work again (maybe approx 6 months), you probably don't
need to buy short term disability insurance or an individual accident
policy.
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The ins and outs of long term
disability insurance - just remember - cheaper if you're in a group policy.
Long term disability benefits assume the role of paying
you after short term disability benefits expire. This will occur approx. 3-6
months after disability. The percentage of salary compensation ranges
usually from 50-66%. You would receive benefits until you are at the age of
65. A group long term policy could price in the few hundred dollars per
year. Remember: group rates are usually cheaper than individual.
If you pay your own premiums and do so with after-tax dollars, your
disability benefits will be tax-free. If your employer pays for the policy,
most likely with pre-tax dollars, your disability benefits will be taxable.
Most disability insurers will work with employers to try to get you back to
work as soon as possible. While disability insurers want to see people
healthy, rehabilitated, and back to work, they also
save significant dollars if a claimant quickly returns to work.
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Here are some things to look for
when reviewing long term disability and short term disability plans.
Definition of disability
Some types of policies pay benefits
only if you are unable to perform the duties of your normal occupation,
while others will pay only if you cannot work in any job at all.
Payment trigger date
Other policies will allow you to
decide when the payments begin. You can choose a shorter or longer waiting
period at the time of your application.
Extent of disability
Some policies require that you be
completely disabled before payments begin. Other policies pay out for
partial disability for a limited time, but most often only if the partial
disability follows a period of total disability for the same cause.
"Residual" benefits
Residual benefits can help bridge
the difference in your income if you are able to work, but are limited in
your responsibilities due to your disability.
Presumptive disability
Other policies will pay some
benefits if you are still able to work but still have loss of sight, speech,
hearing, or use of limbs.
When payments begin
You can choose to begin getting
disability payments anywhere from 31 days to the first six months. The
longer you wait for a payment start date, the less your premiums will be.
Length of coverage
Usually, coverage will pay you for
two years, five years, or until you turn 65. The longer you receive
payments, the more your premium will be.
Keeping pace with inflation
You can also purchase a
cost-of-living adjustment (COLA) to add to your basic disability insurance
policy. This provision generally increases payouts by 4 to 10 percent each
year.
Waiver of premium
Most policies contain a "waiver of
premium" provision so that you do not have to pay premiums if you are
disabled for 90 days or longer.
Source:
National Organization on Disability
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