If you find yourself hurt or ill, you might be interested in learning more about disability insurance, a way to provide you income while you are unable to work. Many U.S. companies provide disability insurance or perhaps you purchased it on your own.
Know that the rules and regulations on what may constitute a disability and what insurance types are provided as a result of those rules differ across the board. We can help by explaining more about disability insurance, also known as D.I., so that you can make sure you have the income you need while you get back on your feet.
Why You Should Get D.I.
This insurance preserves some form of income for you and your family in the event of an accident or illness. D.I. is considered preferable over simple social security benefits which also can provide some money. Even though these benefits already cover most workers in the U.S. after retirement and after they reach a certain age, social security payments are capped at a maximum amount. Disability insurance can cover a majority of a worker’s salary and is independent of your age. Ultimately, you’re apt to receive a higher amount through D.I. than through Social Security.
Insurance Payments
Disability insurance usually is paid on a monthly basis and is supposed to be a substitute for regular income while you recover from injury or illness.
Usually, this type of insurance payments make up 45% to 65% of the total salary on a tax-free basis for the said employee prior to the illness or accident. Occasionally, companies continue to pay the full salary amount as insurance as well. Sometimes, bonuses and commissions are also included in DI. Because you pay the premiums with after-tax dollars, the benefits you receive are tax-free.
D.I. Types
There are 2 types of Disability Insurance:
- short-term
- long-term
Short-term disability packages usually offer coverage for a disabling illness for up to six months. Long-term insurance can cover much of the worker’s salary for a longer period of time up to a lifetime.
Both short term and long term disability policies have a period that you would be required to be considered disabled before you can receive benefits. This is called the elimination period. If you recover before this period of time is over, you don’t receive the benefit.
Another categorization of DI policies is ‘non-cancelable’ and ‘guaranteed renewable’ options. They respectively mean that the policy cannot be rescinded by the issuer except in case of nonpayment of premiums and that the issuer allows the policyholder to renew the same policy without the company being able to cancel it. In the guaranteed renewable policy case, insurance companies can increase the premiums as long as it is done in a blanket manner for all policyholders.
Several insurance companies offering DI also provide additional protections and policy add-ons such as renewals and cost-of-living readjustments. Some policies also offer refunds of some premium payments in case a worker had DI but did not need it.
Approximate Cost
As was mentioned at the beginning of this article, different organizations have different rules outlining disability insurance, which means that the factors that go into calculating the cost of DI also vary to a great extent. Usually the following factors are considered while such an insurance policy is issued:
- Occupation of the employee
- Lifestyle habits and general health profile the employee
- Other monthly benefits that a worker intends to receive on a monthly basis
- The specific disability insurance policy options for specified cases
Generally, disability insurance is more expensive than other forms of insurance such as auto insurance or life insurance, and some of these policies can cost up to several thousand dollars annually. The calculation is based on the level of risk faced by a said employee. Those working in risky industries and with a higher chance of contracting a disabling illness or suffering such an injury are more likely to pay higher premiums as well. Depending on the circumstances, which vary from case to case, the higher premiums of DI usually outweigh the risks of not getting the insurance policy.
How to Get Disability Insurance?
You can get coverage through an employer or buy it from an insurer. Most DI policies are bought privately and through an insurance broker, just like another form of insurance policy. Some companies have such a policy included in their benefits package. Either way, you will need to share details on your occupation, the risks you face, your income level, age, and any pre-existing health condition with your insurance broker. You might also be asked about your lifestyle habits, such as whether you smoke or drink regularly. Your broker will then provide you with a quote based on the provided information. He will also evaluate the likelihood of the risk actually materializing and determine the monthly or annual premium that you will require to pay to receive the policy benefits when you may require or desire to receive them.
Final Word
Now you know a bit more about disability insurance. Hopefully, the unexpected illness or injury does not happen. But if it does, disability insurance can help by supplementing your income while you recover.