WHAT IS DISABILITY INSURANCE?
Disability insurance is an insurance policy that provides protection against mental or physical injury that would disable you from earning a paycheck. A disability insurance policy would provide benefits in the form of payments relative to your lost income. The benefits of a DI policy are payable after a specific period of time and are payable for a specified period of time as defined in the policy. The specifics of how much you are eligible to receive, the duration of payment, the amount of payment, and what disabilities are covered will be stated in each individual policy. The premium you pay to maintain the DI coverage is determined by your income, occupational risks, health, and the scope of disabilities covered in the policy.
WHEN DO SOCIAL SECURITY BENEFITS PROVIDE COVERAGE AGAINST A DISABILITY?
The benefits from Social Security generally pay out after you have been disabled for at least six months. Not only is this a long time to wait, but you should be aware that approximately 70% of social security applicants fail to meet the necessary requirements for receiving benefits. If you do in fact qualify for the Social Security, it is not likely that it will provide for your family’s long term needs adequately.
WHAT PROTECTION DOES SOCIAL SECURITY DISABILITY ACTUALLY PROVIDE?
The government will provide you Social Security Disability when you have become unemployable due to a disability. Generally, you must be disabled on permanent basis. Obtaining benefits is not easy as the application process for Social Security Disability benefits takes an average of 1-2 years. This process consists of an average of 4 appeals before you are finally granted any disability payment. The protection provided is equal to the amount you would receive when you are old enough to begin receiving Social Security. The problem with this is unlike a retired individual, during your working years you are more likely to have smaller savings to live off of, more dependents, more bills to pay, and cost of living is generally higher.
HOW LONG DOES AN INSURED HAVE TO WAIT TO BEGIN COLLECTING BENEFITS UNDER A DISABILITY POLICY?
The length of time an insured must wait depends on the time stated in the policy contract. A typical DI policy has a waiting period between 30 to 90 days. The longer the waiting period the lower the premiums, conversely the shorter the waiting period the higher the premiums required. A strong financial plan should include adequate savings to account for the cost of living for the 30-90 waiting period before your Disability Insurance policy begins paying benefits.
WHAT ARE THE DIFFERENCES BETWEEN THE COVERAGE PROVIDED BY A PERSONAL DI POLICY AND THAT OF WORKER’S COMPENSATION AND STATE DISABILITY?
The primary differences are that in a personal policy the insured chooses the benefits to be provided by the policy. In comparison to worker’s compensation the DI coverage is not limited to work-related injuries or disabilities. An individual DI policy’s benefits are not contingent on continuing to work with the current employer or in what state the insured currently lives in.
DOES MY OCCUPATION OR PROFESSION AFFECT MY ELIGIBILITY FOR A DISABILITY INCOME POLICY?
Yes, every occupation or profession is categorized into certain a risk class that can affect the premiums required and your overall eligibility for coverage. For example, high risk professions such a firefighter, or electrical lineman will dictate higher premiums or in extreme circumstance could make one ineligible all together. Also, an individual who cannot afford to sustain even the slightest disability to perform their profession, (e.g. a professional violinist breaking a hand or wrist) which may cause a career ending injury from a minor physical disability could be charged a higher premium.
IF I PAY THE PREMIUMS FOR A POLICY MYSELF, WILL MY DISABILITY BENEFITS BE TAXED?
If premiums are paid directly from your after-tax income, then the benefits you receive will generally be tax-free. However, if your employer pays yours premiums the benefits you receive will be generally be taxed as income. *This is for information purposes only and is not to be taken as tax advice. Please consult a tax professional.
IS A MEDICAL EXAMINATION REQUIRED TO PURCHASE A DISABILITY INCOME POLICY?
Whether an exam is required or not depends on the amount of coverage being applied for, personal medical history, and your profession. Every Disability Insurance Carrier has their own guidelines they follow regarding the necessity of a medical exam or not.
DO PRE-EXISTING MEDICAL CONDITIONS AFFECT MY ELIGIBILITY FOR DISABILITY INCOME INSURANCE COVERAGE?
Yes, your medical history is applicable. If you have a medical condition that has a high probability of recurring or disabling you from work, then it may affect your eligibility. Some insurance carriers may even offer you coverage with a provision that excludes payment due to the specific pre-existing medical condition.
WHAT ARE THE DIFFERENCES BETWEEN SHORT TERM DISABILITY AND LONG TERM DISABILITY?
Short term disability policy is less comprehensive in the length and the amount of the benefits provided. Short term disability benefits provide a smaller percentage of your income for a shorter period of time. Long term DI provides a much larger benefit as a percentage of income for a much longer period of time, possibly even on a permanent basis. Short term DI is generally provided by your employer, while long term DI is generally a policy purchased individually.
IS A DISABILITY INSURANCE POLICY A NECESSITY?
Many strongly believe Disability Insurance is a necessity unless you are comfortable taking the risk of not being able to provide for yourself and your loved ones in the event you become disabled. The likelihood of becoming disabled during your working career is much higher than that of dying, a risk much too high to ignore. Not only does it provide you with peace of mind, but DI will can sufficiently provide for you and your family in the event you are not able to earn an income. The coverage provided by a DI policy will protect you and your loved ones from the possibility of bankruptcy, losing your home, and loss of educational opportunities.