No one wants to think about what would happen if they were seriously injured and no longer able to work. Where would your money come from? How long would your savings last?
People purchase insurance to cover other important and expensive aspects of their life. Yet often they overlook insuring their income. How can you accomplish this? With a disability income insurance policy.
How Does It Work?
In return for a premium, you are guaranteed monthly benefits if you become disabled. The benefits you will receive are generally 65%, or 2/3, of your before-tax income.
Disability insurance covers both accident and sickness. However, this does not mean that your policy will pay out if you miss a day of work due to a cold. You will have to go through a waiting, or elimination period. This can range anywhere from several days to several months, depending on your policy. Just keep in mind that the shorter your elimination period is, the higher your premium will be.
Types of Policies
Disability insurance offers two different kinds of policies: “Any Occupation” or “Own Occupation”. Under an “Any Occupation” policy you only receive benefits if you are unable to perform any type of occupation. For example, if you work in construction and cannot complete your work due to injury, but you can make calls at a call center, you will not receive benefits. On the other hand, if you have an “Own Occupation” policy you will receive benefits as long as you are unable to perform your “Own Occupation”. Hybrids of these plans are also available.
Another type of disability insurance policy you should be aware of is a coordination policy. This policy will coordinate with your social security benefits. Here is how it works, let us say your annual salary is $100,000 and you are approved to receive social security benefits. Obviously, you will not receive $100,000 a year from social security disability. If you have a coordination policy, the insurance company will fill in the gap of income that social security does not cover. This is limited up to 60-70% percent of your income.
When Do You Need It?
An individual disability policy will cover you in the case of a sickness or injury that results from non-occupational circumstances. If your injury occurs on the job, your policy will not cover you. Instead, your employer’s Worker’s Compensation policy will cover you. However, if you are self-employed or a contractor, you most likely will want a disability policy which will cover both your occupational and non-occupational injuries and illnesses.
What About Social Security Disability Benefits?
To gain benefits under social security disability you must meet the definition of total disability. The definition states that you must expect your disability to last at least 12 months or result in your death. It must also prevent you from performing any gainful work.
If you do qualify under this definition, you will then have to go through a five-month waiting period. But you will not actually start receiving benefits until the sixth month.
Where will your income come from during those five months? Most people do not have sufficient funds to cover such a long-time period. If you truly want to protect yourself and your family you can purchase disability insurance to cover yourself for that gap. Once your social security benefits kick in, your disability insurance benefit will turn off.
Where Can You Purchase a Policy?
At Wealth Guardian Financial our agents can explain in depth how disability insurance can benefit you. They also can help you find a policy that will cover your needs.
If you want to learn more click here to fill out a contact form and someone from our office will contact you.