Disability Insurance: Description Of Disability Insurance

Disability insurance will keep your bills paid if you are rendered disabled due to an accident or are struck by a physical or mental illness. As you get older, your chances of becoming disabled increase. By the time you are 40 years old, the probability rate of becoming disabled before you turn 65 increases to 43 percent. Disability insurance, sometimes referred to as disability income insurance, will financially support you and your family, whether or not your injury is job-related.

You can purchase disability insurance directly from an insurance company or through your employer. Your insurance premium will be lower through an employer because they usually qualify for group discounts. Whether your insurance is through your employer or directly from the insurance company as an individual, you are covered for injuries and illnesses that are work-related and not work-related.

An on-the-job incident or condition is one of the primary causes of disability, which is why most employers offer disability insurance to their employees. Your premium is usually paid in the form of a payroll deduction. Workers compensation automatically begins covering an injured employee and will cover an employee’s injury-related expenses but it is usually only short-term. Standard disability insurance can cover up to 60 percent of your income after workers compensation coverage has ended. Most policies require you to apply for social security when you reach 66 years of age.

There is a government ruling under the Family and Medical Leave Act (FMLA) that mandates an employer, under certain conditions, to allow a qualifying employee a paid leave of absence due to the medical condition of a family member or himself. Situations include a new baby, illness, injury and disability. There are also special circumstances, including care giving to a military family member returning home with an active duty injury.

There are a number of other government programs that provide disability insurance. The U.S. federal government can provide disability insurance through Social Security for people who do not qualify or cannot afford private disability insurance. There are also government programs for federal civil servants and coal miners. The U.S. Department of Veterans Affairs (VA) provides coverage to military personnel.

Disability Insurance: Description Of Disability Insurance

California, Hawaii, New Jersey, New York, and Rhode Island have additional disability insurance programs and employer mandates to further cover disabled citizens.

Your income is your greatest asset. Ensure you and your family’s future by carefully planning for the possibility of a disability.

Disability Insurance: What Does Disability Insurance Cover?

Disability insurance ensures the financial security of you and your family after sustaining a serious injury or falling ill to a serious mental or physical disease. You can receive coverage as an individual to cover your personal expenses; and you can cover yourself as a business owner to ensure the continuation of your company.

As an individual, you can receive insurance to cover 40 to 60 percent of your income.

  • Short-term disability (STD) benefits will cover you for a short period of time, usually between three months and two years. There may be an initial waiting period in order to prove the disability is debilitating enough to prevent employment. Some employers insist that you use all of your sick days before applying for short-term disability.
  • Long-term disability benefits are a little more complicated as there is a precedent sent regarding the abuse of disability insurance. Your long-term benefits begin when your short-term benefits end. A cheap long-term policy tends to end up being worthless as it has very limited scope of what it will cover and for how long. It is suggested that a long-term disability insurance policy that costs a little more but has a wider variety of benefits is a much wiser investment.
  • As a high income earner, or if your income depends on bonuses, you can increase your indemnity. Standard disability payouts cap between $5,000 and $25,000 per month depending on your regular salary, bonuses excluded. However if your income exceeds this amount, you can include an addendum that will give you an additional 65 percent of your monthly income.

As a business owner, you can keep your company afloat if you or a key employee is disabled:

  • Key person disability insurance is a business-related insurance to cover your key personnel, such as a CEO, partner, board member, or owner. You will receive an indemnity to offset the costs associated with hiring a temporary or permanent replacement.
  • Business overhead expense disability insurance is to cover a suddenly disabled business owner by covering his company’s expenses for a predetermined length of time. Expenses that will be covered can include mortgage, utilities, maintenance, accounting expenses, insurance premiums, salaries and benefits, taxes, and so on.

Disabilities that qualify for disability insurance include cancer, heart attack, diabetes, physical injuries, back pain, and arthritis. Now, while you are healthy, is a good time to plan for the worst.

Disability Insurance: Costs Of Disability Insurance

The cost of disability insurance is affordable to most people, and it is available to people who cannot afford it or do not qualify under a standard policy. Disability insurance operates the same way most insurance coverage operates: the higher your premium, the more coverage you receive. A standard short-term, group policy through your employer can have a premium as low as $200 per year.

A standard disability insurance policy will cost you between one and three percent of your annual income and will pay between 45 and 60 percent of your salary, tax free, depending on your policy. Most policies do not cover 100 per cent of your salary as an incentive for you to get back to work. For most people, 60 percent can take care of the basics, such as mortgage, utilities and groceries.

A higher premium means more benefits, including:

Disability Insurance: What Does Disability Insurance Cover?
  • Coverage for a longer period of time. Insurance policies can be two, three, five, or ten years. Longer policies can state up to age 66, or when you are eligible for Social Security.
  • A shorter waiting period before the indemnity kicks in. Some policies stipulate a one year waiting period.
  • A wider variety of injuries and illnesses that will qualify for coverage.
  • A higher cap on benefits: a low- to mid-range policy premium caps at about $25,000 per month, which is sufficient for most people. High-limit disability has an additional cost but caps at $100,000 per month for high-income earners.

The cost of your premium is also based on your health and your lifestyle, including:

  • Your age. You can only apply for disability insurance between the ages of 18 and 60 and as you get older, your premium increases.
  • Your gender. A woman’s premium costs more than a man’s premium.
  • If you are a smoker you may pay up to 25 percent more.
  • The industry you work in. Professionals, such as attorneys and accountants, have the lowest premiums; doctors are a little higher; and blue collar workers are in the highest premium cost bracket.
  • Any pre-existing health issues can increase your premium anywhere from 25 to 100 percent.

The cost of a standard policy, after 15 years of payments, can be recouped in less than three months of disability payments. This is a small price for you and your family’s financial security.

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