Imagine this, a life-altering disaster befalls you, or you’re pronounced to have an acute disease today that leaves you unable to work. Have you done enough to ensure your family’s safety to help them cope financially?
Before we tackle your questions around disability insurance, here’s a video demystifying what it is:
What is disability insurance?
At its most basic, disability insurance (DI) or income protection, is a branch of insurance that compensates the beneficiary’s acquired earnings. Incurred injuries may handicap you from doing your job and so hinder you from getting your paycheck. It comprises policies that ensure that sick leave gets compensated, with either short or long term disability benefits (STD & LTD).
Your age and health play a crucial role in entitling you for a cover. With the older folk, premiums tend to be higher, while fit, young people qualify more easily.
Income protection doesn’t only insure against extreme casualties. Cases for physical harm, cardiac arrest, or cancers are more common than things regarded as “disabilities.”
Why You Need Disability Insurance
What are the chances this may fall on you? Many people battle with the thought that they have to pay for something they may never use. After all, aren’t the other insurance plans you have enough to cover you anyway?
However, according to the Social Security Administration, one in every four people in their 20’s will be disabled for plus or minus ninety days before reaching the age of sixty-seven. On top of this, a whopping 68% of workers not employed by the government don’t have income protection.
Having a long-term plan to take you further than a 3-6 month crisis reserve is crucial for both you and the people you financially support. Think of the peace of mind you’ll have with the knowledge that you’ll still have an income, even while you lie in hospital incapacitated.
What are the types of disability insurance?
You have two forms of insurance to choose from: short term and long term. The two policies work best in tandem.
Generally, I’d say they perform the same duty – providing part compensation for your monthly income.
Long-term disability insurance
In my opinion, long-term income coverage is only insurance worth investing in that insures you for two years to retirement counts as a longstanding policy. Even if you consider your job low-risk and don’t work with bull-dozers, I’d advise you to get a plan that covers you until you retire.
If you opt for private plans, then your cover still stands even if you switch jobs. However, corporate programs are much cheaper and can be sourced by talking to your HR office.
In the long run, this is more financially practical, and I’d say get one that stands for at least five years to subsidize benefits your crisis reserve doesn’t offer.
The only foreseeable issue you may encounter with this is a cross-checking course as you anticipate the check after consulting with your GP. Because LTDs only get activated after STD benefits, there’s a gap of a few elimination months of up to 90 days.
Short-term disability insurance
This is the temporary solution with payouts that cover you for months to about one year. The elimination period here lasts a fortnight, and so the payment comes faster than the alternative.
However, cost-wise, these are higher – so unless that’s the only option your company offers, don’t go for it. If you ask me, you’ll have a better out-put saving on your own in your piggy-bank.
If you have an injury that lasts a few months, your savings can cover you until you’re well enough to go back to work.
The few ways in which they differ include:
1. Regular pay if you can’t work
If a large corporation employs you, then you probably have some form of comprehensive income coverage. Usually, such plans compensate for a fraction of your salary if you’re on sick leave.
These payments go on until you can go back to your job again, or else until you reach retirement or die. Terms of insurance vary according to your agreement with your management.
Entrepreneurs and smaller companies are less likely to have such covers as well as entrepreneurs. Read here how you can benefit from disability insurance covers if you’re self-employed, according to Entrepreneur.com.
Such impairment covers either insurance for own-occupation or “any employment.” With the former, total injury covers failure to function at your regular work. The latter defines total disability with regards to operating any action.
Thus, if you’re able to operate less strenuous duties, you won’t qualify for the benefits. In most cases, covers provide “own-occupation” plans with the initial beneficial period of up to two years, later converting to “any occupation.”
Consult with your HR division to learn if your coverage is sufficient and ask them to talk to you about your band gain. Anything above 60% should suffice for family heads and 40-50% for single employees with no mortgages.
Remember, however, that, though they offer 60%, they only cap their payouts at fixed fee monthly. So if you earn more than $50,000 annually, whatever you get out won’t be 60%. In such a case, explore getting private cover plans to subsidize your group aid.
Also worthy to note is the fact that private covers aren’t taxed, whereas those from most employment plans are taxed.
2. Single payout if you get sick
Critical illness (CI) insurance is available from independent guarantors and compensates lump-sum welfare if you qualify according to their stated conditions. Their tax-free assistance doesn’t interfere with your other injury covers and doesn’t probe on how you exhaust the funds.
Such benefits are useful in paying off your home, care for your kids, and housekeeping needs. However, these are costly and sometimes present issues with accessing the money as some only cover a limited number of ailments. If your illness doesn’t conform to their terms, you won’t qualify to get a payout.
How much does disability insurance cost?
Premiums for both STD and LTD benefits range from 1-3% of your yearly salary. A tip worth remembering is to go for the “non-cancellable policy” as this stands regardless of any health changes you may experience.
Several factors influence the total cost, and some of these include:
- How old you are,
- If you’re a regular smoker,
- The nature of your job,
- Your salary,
- The insurance giver’s definition of “disability,”
- Overall health and known health conditions,
- Gender (females make most claims),
- Elimination period length (longer wait equals cheaper policy),
- How long your benefits payouts will be made,
- Your payout amount
- If you apply for extra features (e.g., protection from inflation).
Who needs disability insurance?
If you’re still young and fit, it seems impossible that life could someday take a turn for the worst. But in reality, everyone should get cover, whether you have an office-desk job or a high-rise window washer.
After all, it’s better to have a safety net, even if you never use it, than to need it someday and be left stranded.
For those with high-risk jobs like a firefighter, your premiums will be understandably higher than a receptionist’s.
Fortunately, most corporations offer disability covers in high-risk jobs, so you’ll have some form of guarantee.
What isn’t covered by disability insurance?
Though not large enough to make you an overnight millionaire, the payout is enough to keep you afloat until you can get back to work. The payment you’ll receive only compensated for part of your salary, but doesn’t cover additional costs like medical aid.
Pregnancy doesn’t fall under the conditions that are insured against in long-term plans. If there are complications with the pregnancy, however, where you’re ordered to stay home after an operation, you may qualify. In this case, you need to have had a long-term policy already in place before the pregnancy.
Short-term plans do consider birth in their list of qualifiable “disabilities,” though you may have to wait 6-8 weeks between each check. Learn what Business Insider says about what short-term disability insurance covers.
Without purchasing a disability cover, you may get partial coverage from the following:
- Workers’ Compensation: Depending on where you live and the size of the corporation you work for, this may partly cover your disability insurance. If you get hurt while on the job or incur a work-related ailment, this cover should insure you up to two-thirds of your pre-disability salary. However, most claims aren’t of that nature; they are cancers, heart problems, and other such diseases.
- Social Security: If you’ve been loyal in depositing to your Social Security, you may be deemed as qualifying to receive disability benefits. There are websites online you can visit to check if you are eligible. Even if you qualify, your injury needs to be assessed and fall under the ailments in their coverage. Your condition needs to be such that you can’t work for up to a year and can’t even adjust to doing “less strenuous work.”
- Self-Insurance: If you incur an injury that makes you temporarily indisposed, you’ll most likely be able to stay afloat with your personal savings.
Another alternative may be the retirement funds that you can access by taking out a low-stake loan.
How does disability insurance work?
Consider setting up a safety barrier for your salary in case life takes a turn for the worse. Let’s first talk about the application process, which generally takes four to six weeks to complete.
- Compare Quotes: Every insurer you’ll talk to will have different requirements and criteria they base their coverage terms on. Use online tools to compare the quotes you get to come up with the best cover at the best price.
- Complete The Forms : You’ll have to fill in some paperwork about your job and personal info. Bring your salary invoices, tax papers, or relevant employment documentation. Make sure you also provide a signed health form for your potential insurer.
- Take the medical exam: Set up a medical exam where a medic will come to collect your general physical details plus blood and urine tests. Notify them of any known health issues beforehand, and your results will automatically be sent to the insurer.
- Conduct A Phone Interview: Someone from the insurance company will contact you to inquire about your lifestyle (e.g., travels, hobbies) and your health history. This will be a short call, and your broker will let you know what to anticipate. Keep your GPs details at hand as they’ll want to have those.
- Endorsement And Approval: Endorsement takes 2-4 weeks, depending on your medical history. Once your policy is approved, it’ll be delivered to you.
- Buy The Disability Insurance Policy: Once approved, you’ll need to sign for and release a fee to mobilize your policy.
Once your plan has been signed and sealed and delivered, you’ll begin making your monthly premium payments. If you’re disposed or too sick to do your job, here’s what you’ll need to do:
- File A Disability Suit: LTD claims usually need details about your job and your injury (diagnosis documents from the hospital). After this, the insurer will reassess the claim and choose to accept it, ask for more details, or reject it. You’ll show them that you’re incapable of working.
- Wait For The Length of Elimination Period: With an LTD, you may have to wait for at least 90 days, with shorter times for STD plans. The longer the waiting period, the higher the payout. Until then, you’ll have to cover your bills from your own savings.
- Receive The Benefits: Once accepted, you’ll get your monthly payout for the duration of your incapacitation period. Employers offer covers that take you up to retirement before your Social Security kicks in.
- Resume Work If You Can: Once you’ve recovered, your payouts will be terminated. However, some policies will continue offering benefits after you resume work if you can only work for reduced periods or change jobs altogether.
Navigating disability is stressful enough without the added burden of financial income. So while you’re still able, make sure you secure a cover that’ll support you and your family if anything happens.
While specifics vary with every case, go for the cover that takes care of your bills and one that aligns better with your lifestyle. Remember, though, that disability insurance doesn’t payout if you pass on; in that case, you’ll need to have life insurance.
Whether you’re barely managing and have to thin out your needs between every paycheck, investing in income protection is a good idea since your situation may worsen if you’re injured. And if you have a family or dependents, then it’s even more critical since they’ll need to be taken care of if you’re someday unable to work.
If you’re the primary beneficiary of your policy, then ensure that your cover sufficiently aligns with your family’s needs and lifestyle in the long-run.
Do you have more queries you’d wish to have demystified? I’ve got more insurance-related knowledge to share with you. Check out other useful articles: