Health Home » The Basics of Disability Income Insurance
The Basics of Disability Income Insurance
Disability Income Insurance
Most people typically think of insurance coverage for their home, car or medical needs. However, we forget that what allows us to afford these items is our employment income and without earning potential it would quickly become impossible to maintain your home and provide for your family. That is why disability insurance is so critical because it protects your income. Physical disabilities can be overcome with the right care, physician, support and ability to cover your financial needs.
If you had a disabling accident or illness and could not work?
How would you...
- replace your income?
- make your monthly rent or mortgage loan payments?
- buy your groceries?
- make your car payments?
- handle the rest of your day-to-day living expenses?
- provide for your children's education?
- save for retirement?
The chances of becoming disabled, permanently or temporarily?
||If you are now age...
||The risk of becoming disabled for over 30 days before age 65 is...
*Source: 1985 Commissioner's Disability Income Table
What are my chances of becomming disabled?
- One in 3 working Americans will become disabled for 90 days or more before age 65. *
- The average disability absence is 2 and a half years. *
- More than 80% of working Americans don't have disability income insurance or aren't covered adequately.
Are there really other ways to pay expenses without purchasing a Disability income policy. Like...
My employer covers me
But ... How long would the business continue to pay you? How much would it pay you? When would your employer have to hire a replacement? Could the business afford to pay both?
I'll use my savings:
But ... If you saved 10% of your income each year, one year of total disability could wipe out 10 years of savings. Can you afford that?
I'll get a loan
But ... Without an income, who will lend you money?
My spouse works
But ... Can your spouse earn enough and be partner, parent, private nurse, and employee -all at the same time?
I'll sell my investments
But ... Will a sale under forced conditions bring a true value? What will their value be at the time you are disabled?
I can collect Social Security:
But ... You cannot collect benefits until the end of the fifth full calendar month of total disability and only if it is expected to last 12 months or more. What will you do if your disability doesn't meet those requirements? Even if it does, can you wait six months for payment?
I'll count on family, friends, or charity
But ... Would these sources have funds for you to use? Do you want to depend on them
*Commissioner's Individual Disability Table A?
Amount of coverage that should be considered
You should consider obtaining enough coverage to maintain the present lifestyle your family has. This means taking into account rent or mortgage payment, food, automobiles and other monthly expenses. You should be aware that income from Social Security benefits or employer related plans most likely would not come close to covering your expenses. Typical policies range from 60 to 70 percent of pre-tax income.
Choosing a benefit period
There are many different plans with different options on this. The best plan would be one that will replace the lost income until you are 65 years of age. However, a premium-saving solution would be to elect a shorter period such as a five- or ten year benefit period.
Definition Of disability
This will be a critical element to any policy that you purchase and with each policy the definitions will vary.
Some examples are:
Unable to Continue in Your Present Occupation
You should consider a plan that defines "disabled" as being unable to continue in your "present occupation". Most workers have obtained a skill that pays them at a salary reflective of that. A good policy is going to replace the income that you would have lost if you are no longer capable of that earning power.
Unable to Perform "Any Occupation"
There are plans that call for you to be unable to perform, "any occupation". These should be avoided, as they are not reflective of your loss
An elimination period is similar to the deductible on an auto policy. It will be the amount of time, generally quantified in a number of days, where you will have to wait until benefits are paid. As in an auto policy this will have a direct effect on the cost of your premiums.
A typical Elimination period would be approximately 90 days. This means that in order to be protected, you would need to have your own financial resources to last 90 days without any income.
A rider is optional, added coverage on a policy and usually carries a premium. It's important to consider adding a cost of living rider for coverage that helps disability benefits keep pace with inflation. Coverage provided by all optional riders can be refused.