Top Things to Know About Disability Insurance

Woman sick in the hospital

Disability Insurance, or simply DI, exists to ensure that an individual does not lose their source of income in case it is impossible for them to work due to an injury or illness. No matter how remote are the chances of an employed individual missing work for weeks or months due to an illness or injury, it is still a real possibility. It is especially pertinent for those employed in risky industries or who have the sort of job that poses risks of physical injuries or medical complications. From a coal miner to a pharmacist, and from a car racer to a fireman, workers of all sorts deal with a plethora of risks that can safeguard against periods of unemployment due to illness or injury.

Types of Disability Insurance

There are two ways disability insurance is categorized, time limit and whether they can be terminated or not. Short-term DI usually covers 60% to 70% of the base salary amount from three months to one year, as determined by the policy purchased. While long-term disability insurance  packages can typically offer 40% to 60% of the base salary amount, for five years or even lifetime, depending upon the illness or injury case in point. The latter costs more than the former, which makes short-term policies more popular amongst the general population.

As far as the termination categorization is concerned, there are policies which cannot be terminated by the organization that has bought the policy for its employees, and the issuing company cannot cancel them either. It is known as a non-cancellable policy. There is also a guaranteed renewable policy, which offers the insured individuals the chance to continue on their previously obtained policies, and the issuing authorities cannot change the premium rates. However, these rates can be changed as long as the insurance company does so for all its policyholders as a blanket move.

Other Disability Insurance Factors You Should Know About 

Works Compensation Versus Disability Insurance

Workers’ compensation or social security benefits do not usually cover all lost wages.  Even though these benefits come as part of law, usually they are not comparative to the expenses of an individual during their employment period. This means that in the event of an accident which causes someone to lay off work for some time, these benefits alone are not enough to cover their expenses.

Flexible Disability Insurance

The higher the flexibility you want in your disability insurance policy, the more expensive it will be for you. While employer disability insurance policies come cheap since they are entirely, or partly, paid off by the employer organizations, the premiums for policies that you obtain independently are higher. At the same time, if you bought the policy yourself or were given as part of your employment package, the payouts you get if you get disabled are tax-free.

Short and Long Term Disability Insurance

The benefit level or the benefit period you decide while applying for disability insurance is the proportion of your income that you will get if the policy becomes active. Generally this is approximately 45% to 70% of your income levels, depending on the kind of job you do and the possibility of risks you face. The waiting period of a DI is the time you will have to wait before you can receive the payout, after you have proven that the insurance payment is due. This can range from one to three months. For lower premium policies, this time duration can go up to 180 days. So if you have a backup fund to get you through this much time period, you can obtain a cheaper disability insurance policy as well.

You can control the costs of the policy you get. The simple calculation here is based on the time period. If you go for a short term policy, it will cost you less and vice versa. However, if you are considering the waiting time period, then the longer you are willing to wait to get your payout, the cheaper the policy and vice versa.

Inflation Protection Disability Insurance

A policy offering inflation protection will come at a slightly higher premium. This simply means that the payout you stand to receive from the insurance company will be adjusted for cost-of-living according to the inflation rate throughout the time period of the policy. With this disability insurance  you will not have to worry about the cost of living increases in general as your payment will automatically increase too.

Requirements When Applying for  Disability Insurance

Anyone applying for disability insurance will be asked to provide information on their occupation, income levels, as well as general lifestyle habits and any pre-existing health conditions. The process of obtaining disability insurance is similar to any other form of insurance, such as life insurance.  An insurance agent is contacted, who then takes the required information from the applicant and determines a premium and expected payout for the policy.