Disability Insurance – Protecting Your Income If You’re Unable to Work
September 18, 2008
What would happen to a surgeon that lost his hand in a home project accident? What would happen to a construction worker who lost the use of his or her legs? What would happen to a single mother who became ill for an extended period of time and couldn’t work as much as she needed to?
Replacing Your Income
These are questions to help you start thinking about short-term and long-term disability insurance. Let’s be honest, you’ve never daydreamed about buying disability insurance. It’s one of the least known and least purchased insurance policies in the United States by individuals. Thankfully, many companies will buy some type of disability insurance as a benefit to you.
Someone who makes $50,000 a year and works for 40 years will make $2 million dollars in their lifetime, and that doesn’t even factor in inflation. With inflation, the number is more like $3 million. Your income is your most important asset and your best tool for building wealth. This is why you MUST protect it by insuring it properly. Here are five things you need to know about disability insurance.
1) Who Needs Disability Insurance?
Everyone who works and depends on their income to survive and pay bills. Sounds like just about everyone, huh?
2) Does My Disability Insurance Cover Me Between Jobs?
It depends. If your employer pays for your disability insurance as part of your benefits package, then it will terminate once you terminate your employment. There might be an option for you to start paying the premium after your employer stops paying it, but you’ll have to contact the carrier directly to ask about that.
If you buy an individual policy, the policy will always cover you, even between jobs, but if you change jobs from one industry or type of job to another, you’ll need to notify your carrier. Disability insurance rates their premiums based on your job and the level of risk involved in doing that job. So, if you go from a desk job to a skydiving instructor, you better let them know or the insurance contract could be void, which means they would not pay the claim.
3) Is there supplemental insurance that I can get?
Yes, if your employer’s policy doesn’t offer as much as you want, you can always purchase more on your own. AFLAC has great short-term disability policies and supplemental accident insurance policies.
4) The importance of short-term and long-term disability insurance.
I recommend having both, because you just never know what might happen to you. Your income must be protected, especially if you are the sole wage earner in your household. Your family depends on your income, and you must insure it. Short-term disability is typically great for working women that are pregnant; you can replace some of your income while you’re not working during maternity leave.
Long-term disability is extremely important, because if you’re disabled to the point that you can’t perform your current job or career, you could face financial hardship the rest of your life. Especially for those of you in high-risk jobs, you MUST have this.
5) What If I’m not totally disabled, but only partially?
Make sure you have OWN-OCC disability insurance. This ensures that you will receive benefits if you are unable to perform your current job. Some disability insurances will not pay a benefit if you can still work. For instance, a surgeon that loses feeling in one arm, but he could technically still be a check-out clerk at Wal-Mart. This disability policy is crap. Make sure you have own-occ, and ask your HR department if that’s what their policy offers.
Don’t be caught without income insurance. This is basically what disability insurance is when you boil it down to the core. Disability insurance should be cheap, unless you’re in a dangerous profession like window washer. There’s no reason NOT to have it.
[...] Original Erik [...]
If you’re a member of a professional association, check to see what disability options they offer- I found this option gave me better rates and coverage more tailored to my occupation.
It’s also important to get disability insurance when you’re young, as it’s easier to qualify and you can often get lower lifetime rates. Many policies will exclude disabilities caused by pre-existing health conditions or charge you a significant premium to insure you, so by getting in before those problems start to develop you can make sure you’re fully covered.
Most policies will also let you renew for life without a medical exam, although premiums may increase with age. It’s also good to get a future income option that provides for increased coverage as your salary increases without requiring an additional medical.
Group policies offered by employers and associations are typically full of exclusions and limitations. In addition, benefits paid by these policies are taxable as regular income. Hence, if such a policy pays 60% of income, the take home is actually more like 42% after taxes.
A supplemental policy can affordably close the gaps but look at more than Aflac. An independent broker can provide quotes from several companies to compare.
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