Do I Need Disability Insurance?
Many people pay more attention on the possibility of early death forgetting that there may be injuries or illnesses that can make them unfit to work thereby making it practically impossible for them to work in order to earn income. The injury I am talking about here is different from work-related accidents or injuries that are covered by workers compensation plan. It is estimated that more than twenty five per cent of people who are 20 years and above will most likely suffer disability before they attain their retirement age. This figure is quite high and I think it should send a message to people in within this age bracket. If you share the same thought with me, you will see the need for every working American to buy disability insurance policy.
People usually say that “Health is Wealth”. What this means is that, you have the ability to create wealth for yourself as long as you are healthy. When a person becomes disabled, he will lose his potential to create wealth. Not only that, he can end up losing all what he has worked for in his entire life. In fact, one year disability can wipe away all the savings you have made over a ten year period. You will be surprised that a lot of foreclosures happen due to the disability of the homeowners. It was gathered from the Principal Life Disability insurance claims incurred as of March 2009 that 48% of all home foreclosures are as a result of disability. Of course, no one prays to become disabled but the truth is that average Americans are exposed to some of the factors that have been identified as the causes of disability. Some of the factors identified by The Life andHealth Experts are Cancer, Mental and Nervous/Substance Abuse, Circulary Systema, Nervous System, Infectious Diseases, Injuries and Musculosketal System/Corrective Tissue among others. The factors shared by WebMD as the leadingcauses of disability are very close to these. Some of the factors mentioned that may surprise you include Arthritis, Back Pain, Diabetes, Parkinson’s diseases, accident and pregnancy. Sincerely, I never thought about pregnancy as a factor to be considered here.
Disability does not necessarily mean that it is going to be permanent. It can last for weeks, months or years. But one thing that is common about disability is the inability for the person involved to work in order to earn income. We know the implication of this. Your expenses may not have any regard to the fact that you don’t earn income. You still need to feed yourself and possibly your family, pay your mortgage and other utility bills. That is why buying disability insurance policy can be considered a wise decision. Let’s look at some of the available disability insurance policies below:
- Short Term Disability Insurance: Short term disability insurance is the type that will pay you certain percentage of your salary you were earning before you become disabled as benefits for a short period. The benefits can range between 40 and 70 per cent. If you become disabled, the policy will make weekly payments to you based on the percentage of your per-disability base salary. This can last twelve months or even up to two years depending on your condition and the terms of the policy. You should understand that short term disability insurance varies among insurance companies. Some will only offer you benefits for a period of just six months while some may extend theirs to one or two years. Also, some insurance company may cover rehabilitation expenses that will help you get back to work. You can have short term disability insurance through your employer. In case your employer does not make this available, you can buy the policy on your own. Signing up to short term disability insurance through your employer can be cheaper as this will be grouped along with other employees. Some employer will require their employees to have worked for certain number of years in their organization before they can be enrolled to enjoy disability benefits. If you are signing up for short term disability insurance policy, you need to be mindful of what the waiting period will be. Waiting period is the gap between when you are injured or become disabled and when your insurer begins to pay you disability benefits. The longer the waiting period, the cheaper the premium you will need to pay. Therefore, if you are comparing quotes from different insurance companies, you should endeavour to compare their waiting periods vis a vis their rates.
- Long Term Disability Insurance: Long-term plan will pay you benefits if your disability lasts for a long period. The coverage usually starts at the expiration of short-term coverage. Once the benefits begin, you will be paid weekly or monthly for a period ranging from one and five years or until you attain the age of 65 years old. If you suffer a long term disability, waiting time of six months may apply before you can tap into the benefits. That is why it is good to always have sufficient amount in savings account that can cover at least three to six months expenses. The policy may also cover rehabilitation expenses that will help you get back to work. However, the benefits will terminate if you go back to work.
- Group disability policies: Group disability policies are usually bought by employer to motivate their employees as part of their packages. Many companies use this to attract and retain good talents. It will cover around 60% of your taxable earned income. However, your benefits may not actually be up to the 60% of your income because of tax since the premium was not taxed. You need to understand that your employer will not pay premium on commissions and bonuses. Is group disability policy good for employees? It depends. But if you resign from your employment or your employment is terminated, you will not be able to transfer your group disability policy to other company or to your individual disability policy. Group disability policies can also be gotten through union or professional association. If you feel that the coverage you enjoy on your group disability policy is not sufficient, you can supplement it with individual disability policy.
- Individual disability policy: In the case of individual disability policy, your benefits are not taxed since you have paid tax on your income before the premium was paid. It can provide you more income coverage as you can choose to include bonuses and commission as part of your income in determining the benefits you will like to enjoy.
Why Disability Insurance
- It provides money that you can use to pay your mortgage, rent, car loans, groceries, child care and other monthly expenses. As mentioned earlier, about 48% of all home foreclosures are as a result of disability. Nothing can be more devastating than this. No matter your condition, if you still have a roof over your head and can afford your regular meals, the burden will not be too much on you.
- Savings may not be enough: Depending on savings is not a good option. No matter the amount of savings you may have, once you start drawing from it, the money begins to reduce gradually. But your disability benefits can help you replace your lost income to some extent. No matter how small the amount, you can be sure of regular inflow of income at the end of every month.
- You may not qualify for Social Security disability benefits. There are some stringent conditions you need to meet in order to qualify for Social Security disability benefits and it is not even available to short term disability.
Factors determining the disability insurance rates
- The company: There are several insurance companies that offer disability insurance. Each of them has their rates. If you shop around, you might be able to find one that will offer you cheap rate.
- Occupation: Even though disability insurance does not cover accident or injury you suffer at work, there are certain jobs that expose you to some hazards which can have adverse effects on your health. Working in a high risk job can increase the chance that you will suffer disability and this can increase your insurance rate.
- State and County: The state where you live will contribute to the rate you may be asked to pay. If you live in a city where the cost of living is very high, the benefits you will need to cover your expenses may be very here. This means that the amount of coverage you need will be high too. Therefore, you may need to pay high premium.
- Benefits: The amount of benefits you want to enjoy and for how long you want to enjoy the benefits to last will impact on your insurance rate. The longer the benefits duration the higher rate you might need to be.
- Terms: If you sign up for short term disability insurance, you will pay rate that is lower than what is obtainable under long term disability insurance
- Age: The older you are, the higher premium you may likely pay in order to keep up with your increased risk of disability.
Understanding the fine print
It is not enough to buy insurance, it is more important that you read and understand the fine print so that you will not be caught with surprise when it comes to applying for your claims or benefits. When it comes to disability insurance, you need to pay attention to the following:
- Level of coverage. Some disability insurance policies will cover 60% of your taxable earned income while some will cover less. You need to be sure of the level of coverage you will enjoy if you are to be paid benefits. You should be sure that you have enough coverage. If the coverage is too low, you will later discover that the benefits are not enough to cover your expenses.
- Determination of total disability: Insurance companies may not define disability the same way. While some will refer disability as your inability to return to work on the job you were doing before you sustained injury, some will only pay you benefits if you can’t work on any job for which you have skills and competence to do.
- Duration of the benefits: How long will the benefits last if you suffer disability? Some will only pay you for 5 years while some will pay you up to the time you attain the age of 65 years.
- Assess the insurance company’s rating and customer service: Your policy may be silent about the customer service you will enjoy. If it is silent, it is better to ask questions. Also, customers’ comments and the company’s rating will provide you a clue of what to expect from them.
Social Security Disability Insurance
What it comes to disability insurance, it may not be advisable to depend solely on Social Security Disability Insurance. The reason is that, Social Security Disability Insurance does not pay for short term disabilities and partial disabilities. It will only pay for total disability. Before you can be considered to have a disability, it means that you can’t work because you have a medical condition that is expected to last for at least one year or result in death. As a result of the disability, you cannot do the work you did before and you cannot adjust to do other work. Besides, you must have worked long enough, at least ten years before disabled, under Social Security.