Disability Insurance
What is it you ask? Individual disability insurance is truly a basic
concept. It is an insurance product designed to replace anywhere
from 45-60% of your gross income on a tax-free basis should a
sickness or illness prevent you from earning an income in your
occupation. Every disability insurance policy from every insurance
company is very different; this is not a product to simply shop for
the most competitive rate. To buy the cheapest disability insurance
policy on the market is to throw money away. The odds of getting
paid a monthly benefit under a cheap contract may be significantly
lower than receiving benefits from a quality contract.
Let's face it: Nobody likes to think about what life would look like
should disability strike. But the reality is one third of all
Americans between the ages 35 and 65 will become disabled for more
than 90 days, according to the American Council of Life Insurers.
One in seven workers will be disabled for more than five years. And
while many people think that disabilities are typically caused by
freak accidents, the majority of long-term absences are actually due
to illnesses, such as cancer and heart disease. The loss of income
can be so devastating that it forces some people to foreclose on
their home or even declare bankruptcy.
A
typical group plan offered by an employer will replace up to 60% of
your salary. Supplemental plans and individual policies will often
cover up to 70% or 80%. (No plan will cover all of your salary for
fear you will have little or no incentive to get back to work.)
Benefits typically last for a set number of years (say five years)
or until you reach retirement age. (Benefits typically stop around
retirement age since once you retire, you would no longer be
dependent on the income you generated by working, anyway.) If you
pay the premium out-of-pocket — meaning your employer doesn't cover
the tab — benefits are tax free.
Individual
Plans:
If you
are self-employed or not covered by your employer, it clearly
makes sense to consider purchasing an individual plan. But even
if you are covered at work you may want to consider
supplementing what you've got: After all, you probably can't
afford to live on just 60% of your salary. An individual plan
will allow you to insure another 10% to 20% of your income. And
in some cases, you may even be able to get individual coverage
for a six-figure salary and a bonus — something you'll never get
with a group plan.
Short-Term vs. Long
Term Disability:
What's the difference?
Short-term disability insurance — also known as sick leave — kicks
in as soon as you're unable to work due to an illness, injury or the
birth of a child. Most employers provide some type of coverage,
ranging from just a few days to as much as one year. In some cases,
the number of weeks you're eligible for this benefit is based upon
how many years you worked at a company. The longer your service, the
more paid sick leave you'll get.
Long-term disability
insurance kicks in once your short-term disability benefits run out.
Unfortunately, there are no state laws that require employers to
provide long-term disability, but it's estimated that half of all
midsized to large firms do provide at least some insurance.
If you do decide to buy
an individual long-term disability plan or to supplement your
employer-based insurance, be sure to find out how much short-term
disability coverage you have. There's no reason to pay a premium for
a long-term disability policy with a short elimination period of,
say, 60 days when you have short-term coverage for six months.
Many different
disability insurance products are available to help protect you and
your family against the severe financial hardship that may accompany
a disability. Have questions about Disability Insurance contact one
of our professionals for help.
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