What Is Disability Insurance?
Disability Insurance gives protection for your income should you become disabled and unable to work due to an illness or injury.
Why Do I Need It?
Your household expenses don’t stop when you are injured or ill. Disability coverage will allow you to continue payments for your mortgage, autos, utilities and everyday living costs. Many families have two wage earners, and it is possible both income sources will need protection, as they are vital for the financial well being of the family.
What Types Of Disability Insurance Are There?
Employer based policies – Typically a short-term policy may be teamed with long term benefits. The short term disability (STD) policy might last for 26 weeks with long term disability (LTD) taking over after that point. Long term policies can offer coverage up to age 65, or up to full retirement age for people who have become totally disabled. Totally disabled people usually apply for Social Security Disability benefits. If Social Security Disability Income (SSDI) is granted that benefit would be coordinated with payout from an existing disability policy. 24 months after the SSDI takes effect the beneficiary will automatically be enrolled in Medicare. Disability policies may be offered by employers with the company and employee splitting the cost of premium, or employees may pay the entire premium via payroll deduction. If the employee is paying the full premium cost any benefits received would be tax free. If the employer pays the entire premium benefits would be taxable to the employee. Employer based policies frequently have no need for underwriting as guaranteed issue benefits are offered to everyone in the group with age of the employee determining the cost.
Individuals can also purchase disability policies and this protection is particularly important to those who are self-employed. Individual policies are generally not divided into short term/long term categories. An individual can purchase a policy that offers benefits for specific periods, such as one year, two years, five years, etc., up to age 67. A self-employed person would need coverage not only for their income, but also for any business expenses that might continue despite an illness or injury.
What Does It Cover . . . And What Does It Not Cover?
Benefits are calculated as a percentage of gross income generally between 50% and 70% of that income. Benefits are based on Total Disability – the inability to perform any part of your work, and you are not engaged in any occupation for wage or profit. Periodic Physician Statements are required in order to initiate a claim and to substantiate continued payment of benefits. Underwriting is rigorous for individuals and claims for something deemed to be a pre-existing condition may not be honored for the first two years or so of the policy. Other typical exclusions for benefits would include acts of war, attempted suicide, intentionally injuring oneself, etc. With individual policies pregnancy might not qualify as a disability unless there are complications. When a beneficiary reaches a stage of partial return to work the benefit will be reduced accordingly.
When Does It Begin To Pay Out?
Individuals can select an “elimination” period of 30, 60, 90, 180 days, or a year. The policy will not pay benefits during the elimination period. The longer the elimination period, the lower the premium will be. With employer group short term disability policies benefits typically begin the first day after an injury, and 8 days after onset of an illness.
What Are The Pros And Cons?
Pros – You can take charge of protecting your home and family by insuring your income. Perhaps 40% of the working population will become partly or completely disabled for a period of time during their career. Individuals can select appropriate elimination and benefit periods to suit their needs and budget. Riders are available that allow for guaranteed right to apply for higher benefits as income increases over the years.
Cons – Underwriting for individuals can result in an increase in the anticipated premium, exclusion of coverage for specific conditions, and/or the benefit amount can be reduced.
