| Disability Insurance
Your most important asset is definitely not your home, your car, your jewelry or other possessions. It’s your ability to earn a living. Consider all of your plans for the future, from buying a home to putting your kids through college to building a comfortable retirement fund. All of these dreams are based on the assumption you will continue to earn a paycheck until you retire. But what would happen if those paychecks stopped? That’s where disability insurance comes in. It provides an income to you and your family if you are unable to work because of illness or injury. The most flexible and reliable source of coverage is an individual disability insurance policy you purchase on your own. A privately owned policy is portable, meaning you won’t have to worry about losing coverage if you change jobs. Generally, most individual plans will pay between 40% to 65% of your pre-disability gross salary. When paid with after-tax dollars, benefits are received income-tax free. For many, a sudden interruption of income could have serious financial consequences. Most of us have some kind of personal debt, typically a mortgage or credit card bills. Would you be able to maintain your standard of living if you were too ill or injured to work for an extended length of time? Half of all home foreclosures in the United States result from disability, as do an alarming number of personal bankruptcies. The other thing to keep in mind is that an accident or illness that keeps you out of work for a period of time can be very costly. That’s because people who become disabled not only need to continue providing for loved ones, but for themselves as well. A disabling injury or illness could lead to medical bills, modifications to your car or home, or other unforeseen needs that can be quite expensive. For all these reasons, almost anyone who works—whether they’re single, married, with children or without—should consider disability insurance. One source of disability income is Worker’s Compensation. If you’re employed and suffer a disabling illness or injury, you might be able to count on Worker’s Compensation insurance to replace some of your salary, typically it pays about two-thirds of your pre-disability income. All states require employers to provide Worker’s Compensation coverage. Worker’s Compensation is a state-mandated disability insurance program that covers lost income and medical expenses when injuries or illnesses happen at work. However, 90% of disabilities occur outside of work. (source: National Safety Council, Injury Facts 2004 Ed.) Another source of disability income is Social Security. The federal government administers a disability insurance program that covers most workers, but qualifying for benefits is far from a sure thing and the payment levels (determined by your salary and work history) are fairly modest. Approximately 60% of applications for Social Security disability benefits are initially denied. The main source of disability income protection in the United States is coverage provided or sponsored by employers. Many employers, especially larger ones, provide their employees with group insurance coverage. There are two forms, short-term disability which replaces a significant percentage of your income for about three months in most cases; and long-term disability, which typically pays 40% to 60% of your base salary (pre-tax) for longer periods. When considering your disability insurance needs, you should be familiar with the following terms: Benefit level and period: Disability policies usually pay from 40% – 65% of your pre-disability earnings at the time of the purchase for a specified period of time. That period may run from one to five years, until age 65, or in some cases, for life. Elimination period: There usually is a waiting period known as an elimination period, before benefits kick in. It’s typically 30 days, 90 days or six months after a disability occurs. You can select the waiting period when you buy your policy. Opting for a longer waiting period reduces the premium cost. Definition of disability: Some policies pay if you’re unable to perform the duties of your own occupation; others pay only if you can’t work at any occupation for which you’re reasonably qualified. In addition, some policies pay only for disabilities arising from an accident. Extent of disability: Some policies pay only if you are totally disabled. Others may cover partial disability for a limited time, but only when it follows a period of total disability for the same cause. Residual benefits: If you’re unable to perform some aspects of your job, residual benefits allow partial disability payments based on the amount of your loss of income. Guaranteed renewable: One of two major types of disability policies. It means your policy can’t be cancelled as long as the premiums are paid. Premiums can be raised for an entire class of policy owners but not for reasons related to your individual circumstances. Non-cancelable: The other major type of disability policy. These policies can never be cancelled as long as premiums are paid , and premiums are guaranteed not to increase. Inflation protection: You can typically add a cost-of-living adjustment rider to an individual disability insurance policy that increases by a specified percentage after each year of disability. Though expensive, this option can be vital to maintaining your standard of living if you’re out of work for an extended period of time. Source: www.lifehappens.org For a free Printable Consumer Guide: http://www.lifehappens.org/pdf/printable-consumer-guide/disability-pcg.pdf
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