Do I Need Disability Insurance?
If you were unable to work, how would you pay your mortgage, or go grocery shopping? If something happened, an accident or an illness, where would the money come from to care for your family? Your children?
It is a fact that one in three people between 25 and 65, will suffer some type of disability that lasts at least three months during their working careers. As any Financial Representative will tell you, disability insurance can protect your income and your lifestyle, when such an event happens to you.
There are many false beliefs that other disability income related alternatives will properly supplement your missing wages, and that you shouldn't worry about this type of policy. Many believe that Worker's Compensation will cover their lost income, but in fact, this benefit only covers your injuries or illness if it occurred while on the job. What if you are in an auto accident on the way to work? What if you have complications due to a pregnancy?
How about Social Security?
Others feel Social Security will cover their lost income. However, Social Security may take several months or years to begin receiving monetary benefits, and it only provides a benefit if you are unable to work at ANY job, not just the job that you have been trained and currently working for. For example, you are in an accident that leaves your paralyzed from the waist down, you may not be able to work construction, or drive anymore, but you are certainly able to work at the local Mall for minimum wage. In addition, Social Security has a very strict definition as to whom they consider disabled: your disability has to be expected to last at least a year or lead to your death.
Believe it or not, many group disability policies through your employer can leave you a little short-handed with regards to the income you receive. Most group disability plans only cover 60% of your salary. But what happens if you receive steady bonuses or commissions as a part of your income? Also, for employer sponsored plans, you will have to pay taxes on the benefit you receive; reducing your take home dollar even more. (As a side note – if you pay the premiums for your disability benefits at work, the income replacement will come to you tax-free)
In order to fully protect your earning capability; a supplemental policy to “wrap-around” your group disability plan provided through work, or simply a quality individual disability insurance plan is necessary if protecting your quality of life and income is a priority for you.
But where do you begin? There are many options and benefits, which is the right plan for you?
As a consumer, you may be a little surprised to find that even individual plans do not cover all of your income if you are in a higher tax bracket. If that were the case, we would have Doctors cutting off their thumbs and Lawyers pleading anxiety disorders due to stress. The truth behind disability insurance is that is there when you need it as a way to assist you and your family through hard times brought about by illness or injury. It is not a way to support your high-standard of living for the rest of your life. Many plans even offer rehabilitative services to help you get better and return to the work force.
Things you should consider
Be cautious when you are “shopping” for a disability policy that you do not choose a plan simply because it is the cheapest. In the long run, you could wind up hurting yourself financially because you wanted to save a few dollars up front. Things you should consider when researching this type of protective policy are: the definitions of a disability (meaning at what point do they consider you disabled), how long the company has been in business, and also the renewability of the policy (meaning as long as you continue to pay the premiums, the company can never cancel your policy, even if you have already made claims against the policy, in addition “non-cancelable” means that the company can never raise your rates – also an important feature).
Another key item to pay attention to as you compare disability plans, is to make sure it covers illnesses, as well as accidents, the older we get the less likely we are to become disabled due to injury and the more likely a disability comes about from an illness. You will also want to invest in a rider (or special feature) called “Own-Occupation”. This allows you to receive disability income if you are unable to work within the profession for which you were educated and trained for; versus “any-occupation” which means you cannot work at all for ANY job.
There are other features and benefits you should consider:
A Residual Benefit is a feature that supplements the difference in your income if you are only able to work part-time or work in a position that pays less than what you received before your injury or illness.
A Benefit Period is for how long your disability income benefits will be paid to you. Since you can not anticipate when an injury or illness will strike, you can also not anticipate for how long you will be out of work. Many financial experts recommend that you purchase a policy that covers your income until age 65, an age when you would typically begin drawing your retirement income.
An Elimination Period is the length of time you must wait before your disability benefit begins paying an income. The typical length of time for an elimination period is 90 days to 120 days. This brings with it the same financial cost as any other insurance policy; the higher the deductable, or the longer you can wait before receiving a benefit, the lower the premiums.
A “COLA” rider (Cost Of Living Adjustment), this is a feature that automatically increases your disability income benefit every so often so that your benefit keeps pace with inflation. For example: $1000 per month meant a whole lot more in the 1970's than it did in the 1980's and the 1990's. If you buy a policy now, replacing your current income, this rider would make whatever the benefit amount to be paid to you worth something when you actually become disabled in future years.
There are many different options and benefits to choose from when you decide to supplement your earning potential with a disability income insurance policy. By knowing the various features and benefits you are entitled to, versus the features and benefits you can choose from with an individual policy can greatly improve the quality of service and of life, should you ever have to experience an accident, illness or even complications of normal life blessings, such as a complicated child birth or sport's injury.
Also be sure to check with your State's Insurance Office to determine a particular company's strength in paying their claims in a timely manner and complaints.
(*This article is intended for informational purposes only, and should not replace discussing your individual needs with your local Insurance Agent or Financial Representative.)