Disability insurance is considered by many experts to be more valuable than life insurance. While life insurance secures the future of your family after you die, disability insurance provides the means for you to support yourself and your family should you develop an injury or illness that causes you to be unable to work. The ability to work and earn an income is a valuable asset; one that is required in order to pay for your lifestyle and support your family. As car insurance offers monetary protection for your car should it become damaged, and health insurance offers monetary assistance for the purchase of medication or doctor’s visits, the purpose of disability insurance is to protect your future after you become physically unable to work by offering monthly compensation similar to what you would be earning were you able to work.
There are two types of disability insurance available to consumers: short-term, and long-term.
Short-Term Disability
This type of disability insurance is most often the kind offered through employment. In the event that a short term illness or disability causes one to be unable to work, these policies normally provide weekly income benefits of 50% or 60% of a person’s salary for 2 weeks to 6 months. Pregnancy, a month-long bout of sickness, or a broken arm are all typical situations that can prevent one from working.
Short-term disability policies may have a maximum monthly benefit amount, called a “cap”. After becoming ill, a person can expect to start receiving money within 1 to 14 days.
Long-Term Disability
Long-term disability insurance is considered by many experts to be just as vital to own as life insurance. This type of disability offers more complete coverage than short-term disability. As a result, it can be much more expensive. Long-term disability can provide someone coverage in the event of a serious long-term illness or injury. Monthly benefits replacing 50% to 70% of a person’s salary usually last from 5 to 10 years or until they turn 65. The best coverage is the kind that offers payouts until the recipient turns 65.Most long-term plans allow a person to purchase more coverage as their salary increases, but some may have a maximum payout number.
There are two types of long-term disability insurance options:
– Non-cancelable long-term disability: Under this type of long-term disability coverage, the recipient has the assurance that their premium (monthly cost of insurance), will never be raised, and, that their policy (the insurance contract) cannot be cancelled as long as it is being paid on time;
– Guaranteed renewable long-term disability:This type of policy, usually less expensive initially, allows the premium to be raised, but only if it affects a class of policy-holders.
When seeking to purchase disability insurance, you may ask, what kind of coverage can I expect? The answer is: that depends. Essentially, your disability insurance coverage is as good as you make it. Choosing the appropriate policy and selecting the best options to tailor the benefit package to your needs can guarantee you that you’ll get exactly what you put into it, which should be everything you want.
Every insurance policy has variables from provider to provider. The good thing is that all these variables fall into four categories: the monthly benefit, the definition of disability, the waiting period, and the benefit period. The kind of coverage you can expect-which, hopefully, is excellent coverage-is hidden in these four categories:
The Monthly Benefit
The benefit is the amount of money you will receive after you become ill or disabled. Most disability policies have a maximum benefit amount comparable to a person’s salary, and many providers allow the purchase of additional coverage. The higher a person’s monthly benefit, the more the coverage will cost.
Disability Defined
There are two different ways a policy can define “disabled”.
1. Own Occupation or “Own Occ”. This definition means a person is disabled, or unable to work, if they cannot perform their duties in their own specific occupation. For example, a dentist who loses the thumb in his favored hand would most likely be unable to work. When a policy defines disability as “own occ”, this dentist will receive benefits even though he may be able perform other duties outside his profession. Benefits under “own occ” typically last 2 to 5 years. A person with a policy that does not define disabled as “own occ” may not be considered disabled if they are technically able to perform work outside their profession.
2. Any Occupation or “Any Occ”. This definition means a person is disabled if they are unable to work in any occupation for which they may be qualified. Policies with this definition of disabled pay benefits until the policy-holder can go back to work or until their policy ends.
Bottom Line: For good coverage, experts recommend policies that define disability as “own occ”, so you don’t have to find work you are not used to performing or that provides a salary you are not accustomed to.
The Waiting Period
The waiting period is the amount of time a person must wait before benefits can begin to be paid. This period may be anywhere from 2 weeks to 180 days, although both shorter and longer waiting periods are offered in some policies. Generally, the longer the waiting period, the less expensive the premium is.
Bottom Line: Good coverage has a waiting period that does not cause you to exhaust your own finances.
The Benefit Period
The benefit period is the amount of time, once a person is disabled, they receive money. This can be as little as 2 years or until the person turns 65, depending on how hazardous their job is.
Bottom Line: For good coverage, choose a policy that offers compensation until you turn 65.
These variables affect the type of coverage you can expect to have. When researching and comparing disability policies, remember that you should have enough disability coverage to allow you to maintain your current lifestyle.