Insurance helps protect your most prized possessions. But covering big-ticket items like homes, cars, and jewelry isn’t always enough. If an injury or long-term illness leaves you unable to work, you may wish that you’d insured your income, as well. Disability insurance helps you secure one of your family’s most valuable assets.
How Disability Insurance Works
There are two basic types of disability insurance: short-term and long-term.
Short-term disability insurance replaces a portion of your income if you’re temporarily unable to work due to an injury, medical complication, debilitating illness, or even childbirth. Short-term disability benefits typically kick in either immediately or after a short elimination period lasting anywhere from one day to four weeks. Benefits may last anywhere from six weeks to two years.
Long-term disability insurance picks up where short-term leaves off. It insures your income against the risk of a chronic or life-threatening condition. Long-term disability insurance can replace a portion of your income for several years, until retirement age, or for the rest of your life, depending on the policy terms.
A long-term disability policy can also help people working in a specialized field insure their earning power in that specific occupation. This can help protect high-paid professionals who are forced into an unexpected career change. For example, a surgeon with a hand injury may not be able to perform surgery but could be retrained to do another job.
Group Versus Private Insurance
Group plans offered by an employer or through a professional association may be less expensive than those purchased in the private market.
For some people, however, group coverage isn’t enough. This can be especially true when financial or personal responsibilities increase. Purchasing a home or starting a family, for example, may create a need for additional protection.
Disability Insurance Coverage and Rates
The amount of your salary that is covered under a disability policy will vary by plan. Group policies typically insure 60 percent or less of your income — and it’s important to review your policy carefully to understand how income and salary are defined. Bonus or commission pay may not be included in the calculation. Your benefit amount may be calculated based on your net salary (after taxes have been taken out), and some plans have caps on how much you can receive per month.
Disability insurance premiums are based on your age, gender, the type of work you do, and how much of your income you want to insure. Office workers typically pay less than people in more dangerous occupations, like firefighters. Because short-term disability claims frequently relate to pregnancy complications, women of childbearing age may also pay higher premiums.
Extras to consider include partial disability riders that allow you to collect a portion of your benefits if you return to work part-time and benefit adjustments that keep pace with the cost of living. Finally, check to see if your policy is guaranteed renewable so that you can renew subject to possible premium increases.
By carefully considering your family’s needs in the short and long term, you can find the disability insurance policy that’s right for you.
