by Gaurav Bhola, MSM, Managing Editor
September 4, 2007
Want to turn a smile upside down, just mention the word insurance to someone.The word insurance sends shudders through people, but sometimes insurance is necessary. As consumer needs have changed over time, so have the products offered by insurance companies.There are many flavors for each type of insurance such as, life insurance, health insurance, car insurance, business insurance, home insurance, travel insurance, disability insurance, medical insurance, and more. It is critical that you get the appropriate insurance quote to protect yourself, your family, your finances, and any business.
If you don’t like insurance, just take it as if you would take bitter tasting medicine, you may not like taking it but it is good for you.The essential insurances to consider are health insurance, disability insurance, life insurance, auto insurance, and homeowner/renters insurance. Today, we cover disability insurance.
DISABILITY INSURANCE
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What is it |
Disability insurance pays part of an insured person’s income during the period of a disability due to an illness or accident. |
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The choices |
- Short-Term Disability policies (STD) - the waiting period can be an average of 0 to 30 days, in some plans it can be longer; the maximum benefit period usually lasts 24 months.
- Long-Term Disability policies (LTD) – the waiting period can have a huge variance, it can be 30 days to more than 180 days; the benefit period can vary from 2-5 years and till age 65.
Types of disability insurance contracts:
- Noncancelable policies – your policy cannot be canceled by the insurance company, excluding failure to pay your premiums. Hence, you are able to annually renew your policy without loss of benefits or increase in premiums. Best option.
- Conditionally renewable policies - : your rates can go up or your coverage canceled as the insurer sees fit. This is the least palatable option
- Guaranteed renewable – your policy will remain in force as long as the premiums are paid, re-insurability is guaranteed. However, your premiums can increase based on any filing of a claim for injury or illness that can cause risk of future claims.
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Which choice works for me |
Disability insurance through work:
- If disability is offered to you at work, take advantage of it. If short-term and long-term disabilities are offered, sign up for both.
- STD will be a stop-gap measure until your LTD kicks in. Remember from the day you report your disability, it may take days or weeks before the paperwork is processed and you receive your first check. You don’t receive a check the day you report your injury.
- Usually, companies give 60% to 65% of your income during a disability. Most importantly you are taxed on that income, so you may only end up getting 50% -55% of your income. Are you able to sustain your standard of living at half your income?
Personal Disability Policy:
- It is recommended that you purchase a separate LTD policy. You can never get 100% of your income during a disability but you can come close to 70% to 80%. This can help meet your expenses during that time.
- Also, the disability income you receive from an independent DI policy is tax-free.
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How it can help you |
- Not having disability insurance can be of extreme detriment to your finances, an unneeded burden on top of your disability.
- During a disability, the income protection can help alleviate the worries of meeting your daily expenses and any medical expenses.
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Long-term disability insurance gives you the ability to sustain yourself during a period of injury or illness.According to the Life & Health Foundation for Education statistics, one out of three workers during their career will suffer a disability lasting three months or more. The statistics from the U.S. Census Bureau illustrate that one in five Americans will become disabled before age 65 for a year or more. Based on these figures and knowing that 70 percent of employed Americans can only afford to take a month or less off from work before daily expenses catch up to them; it is critical that you have disability insurance through work and an independent policy as well. Have a safety net.
