KEY TERMS
When evaluating your disability insurance requirements, you should be aware of the following:
BENEFIT LEVEL AND PERIOD
Disability insurance typically provides compensation ranging from 40% to 65% of your pre-disability income at the time of acquisition for a designated duration. The duration may extend from one to five years until the age of 65 or, in certain instances, for a lifetime.
ELIMINATION PERIOD
A waiting period, an elimination period, typically precedes the commencement of benefits. It is generally 30 days, 90 days, or six months following the onset of a disability. You may choose the waiting period upon purchasing your policy. Choosing an extended waiting period decreases the premium expense.
DEFINITION OF DISABILITY
Specific policies provide benefits if you are incapacitated from performing the responsibilities of your particular occupation. In contrast, others offer compensation solely if you cannot engage in any occupation for which you possess reasonable qualifications. Moreover, several insurance companies provide coverage for disability resulting from an accident.
EXTENT OF DISABILITY
Specific plans provide benefits exclusively in cases of total disability. Some policies may provide coverage for partial disability for a limited duration but only after a period of total disability resulting from the exact cause.
RESIDUAL BENEFITS
If you cannot execute certain facets of your employment, residual benefits provide partial disability payments commensurate with your income loss.
GUARANTEED RENEWABLE
One of the two primary categories of disability insurance coverage. Your policy cannot be terminated as long as the premiums are remitted. Premiums may be increased for a whole category of policyholders, but not due to individual circumstances.
NON-CANCELABLE
The alternative primary category of disability insurance. These insurances are irrevocable as long as
premiums are remitted, and premium rates are assured not to escalate.
INFLATION PROTECTION
An individual disability insurance policy usually includes a cost-of-living adjustment rider that raises benefits by a predetermined percentage annually during incapacity. Despite its cost, this choice may be essential for preserving your standard of living throughout prolonged unemployment.
WHAT IS DISABILITY INSURANCE?
The mechanics of insurance safeguard your finances against unforeseen events. For instance, flood insurance will assist in covering the financial costs incurred if your residence sustains damage during a hurricane. Similarly, health insurance and car insurance safeguard your finances against exorbitant medical expenses or substantial costs following an automobile accident. Similarly, disability insurance is a financial safeguard in the event of disability. What is the necessity of this? Disability can occur to anyone at any moment. It is not solely attributable to accidents or senescence. The Social Security Administration indicates that individuals in their twenties have a 25% likelihood of becoming incapacitated before retirement. The 2013 U.S. Census indicates that over 30 million Americans aged 21-64 are disabled, representing over 12% of the U.S. population.
PERSONAL DISABILITY INSURANCE
An individual disability insurance policy you acquire independently is the most adaptable and dependable source of coverage. A privately owned policy is portable, indicating you need not be concerned about losing coverage upon changing employment. Typically, individual plans provide compensation ranging from 40% to 65% of your pre-disability gross income. When compensated with after-tax funds, benefits are obtained exempt from income tax.
RISK FACTORS:
• Chronic conditions (e.g., diabetes, cardiovascular disease, hypertension, etc.)
• Discomfort or painful medical issues (e.g., lumbar pain, arthritis)
• Medical conditions or adverse effects of medicines that may lead to falls (e.g., vertigo, sedation, instability, etc.).
• Excess weight, which may impair movement and contribute to health issues
• Tobacco use and heavy alcohol consumption
• Occupations with a higher risk of accidents, such as carpentry or construction • Sports, incredibly intense or contact sports.
• Extended commutes, which elevate the likelihood of motor vehicle collisions
• Age – increased age correlates with a heightened susceptibility to falls or the onset of debilitating conditions. Should you possess any of the subsequent danger variables, contemplate acquiring an insurance policy to mitigate your daily and unexpected expenses in the event of disability.
HOW IS DISABILITY INSURANCE DIFFERENT FROM LIFE INSURANCE?
Life insurance and disability insurance are fundamentally distinct from each other. Life insurance will be disbursed to your beneficiaries upon your demise. Some life insurance policies offer “living benefits” that can be accessed before death but are often restricted to terminal illnesses. Specific life insurance policies, including whole life insurance, may permit you to borrow against your policy’s cash value to cover living expenses; nevertheless, it is essential to review your specific policy to confirm the availability of this option and its associated restrictions. Disability insurance, conversely, is intended for use while you are still alive. There exist both short-term and long-term policies. They compensate around 60% of your wages if you cannot work owing to a debilitating ailment. Most plans necessitate documented evidence of the condition and a specific duration before the commencement of payments.
ISN’T THAT WHY I HAVE WORKER’S COMPENSATION?
Workers’ compensation exclusively addresses injuries or disabilities sustained in the workplace. It does not protect against disabilities arising from incidents outside of employment, such as cancer or a vehicular accident, for instance. What is the status of Social Security Benefits? One must apply and satisfy the stringent criteria to be eligible for Social Security payments. The Social Security Administration states the following on its website: To qualify for disability benefits, an individual must satisfy the definition of disability as stipulated in the Social Security Act. An individual is deemed disabled under the Act if they cannot work due to a serious medical condition that has persisted, or is anticipated to continue, for a minimum of one year or leads to mortality. The individual’s medical condition must inhibit their ability to perform previous work and hinder their capacity to adapt to alternative employment. Remember that disability insurance compensates you according to your income, although the Social Security Administration does not. There is a limit on how much money one can get from Social Security Benefits. In 2015, Social Security disbursed an average monthly disability compensation of $1,165, which is insufficient to maintain a beneficiary above the 2014 poverty threshold. Consequently, financial advisors may advise against relying exclusively on Social Security benefits as your sole or primary source of income in the event of disability.
TALK TO YOUR FINANCIAL ADVISOR
Disability can occur to anyone at any moment. Therefore, do not overlook the advantages associated with obtaining disability insurance. Consult your financial counselor to review your risk factors and determine the necessary and affordable amount of insurance.
