If you become seriously ill or get hurt to the point you cannot work, where will your income come from? One of the most reliable resources in such a situation is disability insurance. It can provide you with steady income if you are not able to work for a prolonged period of time. In this article, we will go over why you need disability insurance, how it works, and what to look for when shopping for a policy.
Why You Need It
According to a study done by AHIP, most American’s cannot afford to miss more than two months of work. This is unsettling since another study found that illness or accident will keep one out of five workers off the job for at least a year before they reach the age of 65. So how do you protect yourself? Some may reason that there are other avenues of income out there. Many think that between employer-provided disability insurance, social security disability income, and worker’s compensation, you do not need to purchase disability insurance. While these avenues can be very helpful, they all have downfalls that you should be aware of:
- Employer-Provided Disability Insurance: First of all, many employees do not have this option available to them. If they do, many of these plans will only replace 60% of your income, and they will have a maximum monthly benefit. They are also not portable, so if you leave the company, the policy ends.
- Social Security Disability Income: In 2005, more than 60% of those that applied for SSDI were denied. Of the people that were accepted, for many, the income received still left them below the federal poverty level.
- Worker’s Compensation: To be eligible for worker’s comp, your illness or injury must be directly caused by your employment. If it is not, you will not receive any benefits.
As you can see, these options leave some gaps in your income. How does disability insurance help?
How Disability Insurance Works
In return for paying the insurance company a premium, you will receive around 65%, or 2/3, or your income in monthly payments. To receive these payments, you must first meet your insurance company’s definition of disability. It will differ slightly from company to company. But typically, your illness or injury must make you unable to perform the duties of your occupation. If you qualify, you will them have to wait through the elimination period. An elimination period is the number of days you must wait from the date of injury or sickness to being receiving benefits. You will receive these benefits until your return to work, or your benefit period expires, whichever comes first.
There are also policies available that will coordinate with social security benefits. These plans help to fill in the income gaps that SSDI leaves behind. Your local disability insurance agent can educate you more thoroughly on your options.
Shopping for a Policy
There are several factors that you need to take into consideration while shopping for disability insurance. Your choices will affect your premium and coverage. These choices include:
- Type of Disability Covered: You can choose a policy that will only cover accidents, or you can choose a policy that will cover accidents and sickness.
- Elimination Period: This is the number of days you must wait from your date of injury or sickness before you will begin receiving benefits. The shorter your elimination period is, the more expensive your premium will be. Whereas the longer your elimination period is, the less expensive your premium will be.
- Benefit Period: This is the number of months you will receive disability payments after your elimination period is satisfied. The longer your benefit period is, the higher your premiums will be.
- Age: The age at which you purchase a policy will also affect your premiums. The sooner you purchase a policy, the better. This is the case because the younger you are the less risk you carry. This will make your premium cheaper.
- Income: Income is another premium affecting factor. For example, if you have an annual income of $30,000, an insurance company will have to pay less in benefits to you than to someone who makes $100,000 a year. This being the case, the lower your income, the less your policy will cost you.
If you are unsure about your options or want help navigating them, meet with a qualified insurance agent who can help you find the best policy for your needs.
As you can see, having a disability insurance policy is of great benefit. It can give you peace of mind, knowing that no matter what happens, you will have a way to provide for you and your family. Do not delay, start looking for a policy today.
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