Insurance is a type of protection that provides protection against financial loss or damage. The coverage provided by insurance is designed to cover various types of loss or damage, including property loss, liability losses, medical expenses and death.
Insurance is usually a financial contract between two parties, which obligates the insurance company to provide a certain amount of money in case of an event that would cause the insured party to suffer financial losses.
We all try to think about protecting our assets through health, home, auto, life insurances, but there’s another type of insurance that we tend to overlook.
Many people are not aware of the importance of disability insurance. The reality is that no matter how cautious we try to be in our everyday lives, accidents can always happen.
Unfortunately, some accidents can leave a person unable to perform their work duties for months or even years. Many individuals overlook disability insurance because they believe that their lives are risk-free. However, a back injury, heart attack, or other long-term illness can impact almost anyone.
It’s better to prepare for the worst rather than assuming it won’t happen to you. Disability insurance is a great way to protect yourself and your family in the event that you become unable to work for an extended period of time.
How Does Disability Insurance Work?
What is disability insurance? Disability insurance covers losses that may be caused by accidents and other events in life. These events include accidents, injuries, and sicknesses.
The primary goal of disability insurance is to protect the income for a period of time after an accident or illness has been experienced. Some may also assist in relieving expenses or other financial hardship related to the care of individuals with especially chronic conditions.
Disability insurance provides protection and assistance to people who have already been diagnosed with a disability but have not yet experienced any physical or mental disability. It also protects those who are unable to work due to their disability.
Disability insurance will
supplement a portion of an insured person’s income if he or she becomes unable to work. Coverage can last for weeks, months, or even years following an injury or illness. It works in a similar way to life insurance. The insured pays a premium (which is sometimes deducted from the insured’s paycheck) for disability coverage.
These payments keep the insured’s disability policy active. In the event that disability occurs, the insured can expect to have a portion (usually 60-80%) of their income replaced.
To obtain disability insurance, an individual can take one of several routes.
- Signing up for disability insurance through the individual’s employer. Some employers offer disability insurance as part of their compensation package.
- Purchasing a disability insurance policy through their workplace. If the policies are not offered in the compensation package, some employers still offer coverage.
- Purchasing a policy through a professional association. An example is purchasing it through the American Bar Association or American Dentists Association.
- Purchasing a policy through an insurance company or brokerage company. The policy is often sold by a company that has access to disability insurance underwriting.
How Much Does it Cost?
Generally, the cost may vary depending on these following factors:
- Your age and health. The cost can be higher for older individuals, especially those who are already in poor health.
- Your gender. Women typically pay more for disability insurance because they file claims more often.
- Your occupation. If you’re in a high–risk occupation, you’ll pay more for coverage than someone who doesn’t work in a high–risk occupation.
- Your annual income. The cost can be higher for higher-income individuals, because they have more to protect.
- The waiting period. The waiting period is when you have to wait after being disabled for a limited period before benefits kick in. You can reduce the cost of premiums by extending this waiting period.
- The period for benefits. The benefit period will have an effect on the policy price. So, if you apply for coverage within a longer time frame, the cost will get higher.
Occupation Rider
Not all policies are equal. One may offer different coverage options and monthly benefits compared to another. For one, the types of disability insurance can be divided based on whether or not they depend on a specific occupation.
“Own occupation” disability insurance is appropriate for disabilities that do not fully end an individual’s ability to work.
Own-occupation policies help the insurance carrier who’s lost the ability to work in a specific occupation. Take, for example, an agricultural professional who has become unable to bend down or lift heavy objects. He or she may still be able to work at a desk job if they apply for own-occupation policies.
“Any occupation” disability refers to a person’s inability to work in any occupations at all. These policies are more difficult to claim retirement benefits from, being that many disabilities do not completely bar a person from work.
To be certain that disability benefits keep up with inflation, it’s a good idea to have a
COLA rider attached to your policy. This rider ensures that a person’s benefits increase annually to help cover the rising cost of living. Usually, the rider takes effect 12 months or more after a person’s disability occurred.
Short-term VS Long-term Disability Insurance
There are two main types of insurance terms when it comes to disability, short-term and long-term. While both types of coverage will replace some income, each includes different features and access to services.
1. Short-term Insurance
This type of disability insurance usually replaces between 60-70% of an individual’s income. The payout for short-term coverage typically lasts for several months to one year and ends when the disability ends.
Short-term policies are best for those who are able to return to work within a short period of time. For example, if a person is able to return to work within 6 months, then this type of insurance would be the best option to cover up any potential loss of income.
2. Long-term Insurance
This type of disability insurance usually replaces between 40-60% of an individual’s income. When the disability ends, the benefits end.
If the disability is ongoing, benefits end after a certain number of years or once the individual reaches retirement age. Disabled individuals usually have a 90-day waiting period between the time their disability occurred to the time they receive benefits from long-term coverage.
Additionally, sometimes long-term policies also offer additional services, like training for the disabled worker so that they’re more well-equipped once they’re back in their workforce.
Choosing between long-term and short-term insurance is a personal decision. Each policy is designed to help meet different needs. The best option for an individual depends on their specific situation.
Either way, being aware of what policies define as “disabled” is crucial when it comes to obtaining the right coverage. Some companies only pay benefits if an individual can’t work at any job they’re qualified for.
Others offer policy benefits for individuals who cannot perform their specific occupational tasks. Further, some companies offer partial benefits for individuals who can work part-time. Others don’t offer benefits unless an individual can’t work at all.
Term Duration
Short-term disability insurance covers conditions that likely last for less than a year. Hence, it is best for those who need temporary assistance with expenses while they go through the process of recovery.
Meanwhile, long-term insurance can cover up to a 10-year disability. If an individual becomes permanently disabled, or they’ll die as a result of their disability, he or she would then
apply for disability from the SSA.
Final Thoughts
Disability insurance is a great way to protect yourself and your family in the event that you become unable to work for an extended period of time.
Though nobody wants to think about the possibility of becoming disabled, the threat is a very real thing to consider. Even if you feel that you’re living a healthy, safe lifestyle, it’s a good idea to have disability insurance covering you in case of an emergency.
It’s far better to prepare for a disaster and have it never occur than be caught in a situation that’s difficult to overcome.
If you’re thinking about purchasing disability insurance, you should know that it’s important to have a knowledgeable financial professional help you.
They will answer any additional questions you may have, as well as guide you through the application process, should you decide that you need to apply for disability insurance.
You should make sure that the company is licensed and offers the right amount of coverage. This will guarantee your financial safety, and ensure your smooth sailing towards full financial stability.
