Disability plays no favorites.
Just because you are injured does not mean that you no longer have to pay for your home, children, utility bills, etc.
What if you could no longer work? Would you be able to live without a steady income, or take care of your loved ones? The idea may seem far-fetched, but the truth is this exact scenario isn’t uncommon.
In fact, according to the Social Security Administration, more than 25 percent of today’s 20-year-olds will have to take a full year off of work before they reach retirement age as the result of experiencing illnesses such as cancer, arthritis, or depression.
Since most jobs aren’t going to provide a year’s worth of leave, how would you guarantee a consistent income if you found yourself in this type of situation? The answer is with disability insurance. Read on to learn how disability insurance works and how, when worst comes to worst, it can save your life. First, let’s look at a disability insurance definition.
Disability insurance is a form of insurance that pays a portion of your income if you can no longer work – that’s why it’s also referred to as “income protection.” You can think of it as “income insurance” specific to disabilities.
As with other kinds of insurance, you’ll pay a premium each month that keeps your plan in force.
If you develop an illness or injury that makes it impossible to perform your job, regular payout will begin after a waiting period (also called an “elimination period”) established in your policy.
You can use this money any way you want – to pay for groceries, phone bills, your mortgage, etc. – just as if it were your normal income. Disability insurance is grouped into two main types: short-term disability insurance and long-term disability insurance. As you might guess, the primary difference between these is how long you’ll receive payments if you continue to be disabled.
Short-term disability insurance is geared toward injuries or illnesses that impede your ability to work for a shorter period of time – usually between 3 and 6 months. Think a broken leg, recovery after surgery, or an illness that has you in bed for a few months. These policies pay between 40 – 60 % of your salary, and the waiting period is usually about 14 days.
Most people get short-term disability insurance through their employer. This is much more common than buying an individual plan directly from an insurance provider. Guardian disability insurance, for instance, is only available through an employer. In what’s known as state disability insurance five states – New York, California, Rhode Island, Hawaii, and New Jersey – actually require employers to provide short-term disability insurance.
One perk of group coverage through your employer is that you won’t have to go through an underwriting process – this is where you’re evaluated individually by the insurance provider and given a unique premium dependent on, for example, your current health. Another is that your employer will pay part or even all of the premium cost.
The main drawback of getting short-term disability insurance through your employer is that the policy is tied to your job. If you lose or change jobs, you’ll no longer have that plan. This is where short term disability insurance not through an employer comes in – you can buy an individual policy that isn’t connected to your job. Of course, this also means disability insurance for self-employed people is available.
With an individual policy you’ll have say over what riders are included, for example, and you won’t have to pay taxes on the provided income. Even if you do have a disability policy through your employer, these benefits may mean you want to also get supplemental disability insurance.
Finally, although they’re sometimes confused, it’s important to note that short-term disability insurance is not the same thing as workers’ compensation. Workers’ compensation applies only to injuries that occur on the job.
Long-term disability insurance can help you if you can’t work for extended periods of time. These policies cover periods of between 2 – 10 years – some can even provide you with an income until you turn 65!
While certain employers do offer these plans, it’s best to buy long-term disability insurance as an individual because coverage through an employer doesn’t usually provide a sufficient percentage of your salary.
Choose the right disability insurance for short term, and long term disability.
An individual disability insurance plan can provide you with 60 – 80 % of your pre-disability income, and the most common waiting period is 90 days. Since long-term disability insurance has a longer waiting period than short-term disability insurance, it’s best to have both.
They’re meant to work in tandem – ideally, your long-term disability insurance policy will kick in around when your short-term disability benefits expire, and you won’t go a significant period of time without an income.
The cost of disability insurance for individuals will depend on a few factors. The most important are:
Speak to a disability insurance expert at Dickey McCay Insurance.
Age – The older you are, the more likely you are to experience a disability and file a claim. This is one reason why it’s best to sign up for a health insurance policy while you’re young – not only will you have security, but you can lock in a lower rate that could stick with you for years.
Gender – Because women statistically file more claims than men, they’re charged higher premiums. Life insurance policies, on the other hand, are more expensive for men since women have longer average lifespans.
Health – The current state of your health can tell providers a lot about how likely you are to file a claim in the future. Smokers, for instance, are more likely to develop lung cancer than non-smokers, while obesity is correlated with diabetes. The better your overall health, the lower your disability insurance premium will be.
Occupation – It goes without saying that people working in certain professions have a higher risk of becoming disabled than others – a career as a police officer or construction worker is more dangerous than that of an accountant, for instance. Insurance providers will take this into account when calculating your rate
Definition of Disability – Earlier we mentioned that disability insurance will provide monthly payouts if you can no longer work. But what does “no longer work” actually mean? Does it mean you can’t
work at your current job, or that you can’t work at all? The answer depends on whether or not your policy is “Own occupation” or “Any occupation.” With an “own occupation” policy, you’ll receive benefits if you can’t perform your job whereas, with an “Any occupation” policy, you’ll only receive benefits if you can’t perform any job. An own occupation policy will cost more, but will be well worth it if you have a specialized, high-paying job.
Length of Waiting Period – The longer the waiting period before your benefits kick in, the less your premium will cost. For instance, say you want to pay a lower overall premium on your long-term disability. However, you’d have to ask yourself if that’s worth it – you’d need to make sure you have enough money saved up to make it through those initial 180 days without an income.
Length of Benefits – Every policy has an amount of time it will continue to provide benefits. The longer the amount of time, the higher the premium. A policy that carries you all the way to retirement, for example, will cost more than one that’ll cover you only for 2 year!
Riders – Riders are optional “add-on” features for your policy. Some of them are important to have but will nonetheless increase the cost of your policy. Some riders for disability insurance include:
If you’re a veteran who’s become disabled in the line of duty, you may qualify for what’s called Service-Disabled Veterans Life Insurance, or S-DVI. S-DVI comes with low premiums and offers $10,000 in coverage with up to $30,000 in supplementary coverage.
If you are completely disabled, you won’t have to pay anything in premiums. To qualify, you must have been rated for a service-connected disability by the VA within the past 2 years, be in good health besides the disability, and not have been dishonorably discharged.
Take comfort that you won’t have to stress about providing for your family after a disability.
You’ve probably heard of Social Security Disability Insurance, or SSDI. This is a program run by the government that provides money to people who have worked, but can no longer work. There are a few things that make it a less than ideal option, however. For one, SSDI is difficult to qualify for – you’ll have to have worked a certain amount of time in a job in which you made Social Security payments.
Secondly, unlike a disability insurance plan with an “own occupation” qualifier, Social Security will only pay if you can’t perform any job. You also can’t earn more than $1,120 per month. SSDI pays only a small amount each month – the average payment is about $1,227. Would you or your family be able to live on this amount?
Overall, standard disability insurance is the way to go to really guarantee you have enough money if you can no longer work. It can act as the foundation of your entire lifestyle and also allow you to pay for other types of insurance.
Build your customized disability coverage at an agency with a combined 80+ years of experience.
Dickey McCay is passionate about helping clients balance out all of these points in order to secure a monthly premium that fits within their budget.
Everyone is different, and everyone deserves access to a unique policy. If you’re looking for a disability insurance quote, feel free to contact us today. Together, we’ll help insure your income and quality of life in the face of unexpected disabilities.
Cooperhill, Tennessee – (423) 496-3366
Tellico Plains, TN – (423) 253-3524
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