A Guide to Understanding Disability Insurance
An increase in medical costs and a decrease in employers offering benefits to their employees is combining to create a growing crisis among U.S. workers — a lack of adequate protection in the event of disability. In fact, up to 51 million workers in the United States do not have disability insurance outside of the benefits provided by Social Security. When you combine this with the fact that not even half of the households in the U.S. have enough savings to cover three months of expenses, you can see the danger.
Every year, at least 5% of U.S. workers will be hit with a short-term disability caused by pregnancy, illness, or injury, while one-fourth of today’s working twenty-year-olds will be unable to work for at least a year due to disability before reaching retirement age. As if that isn’t scary enough, over 77% of people filing bankruptcy listed loss of income as a major contributor, and over 44% targeted medically related work loss.
Importantly, today’s workers can’t rely on Worker’s Compensation and Social Security benefits to help. Worker’s Compensation, for example, only covers time away from work if the disability was directly related to work. According to the numbers, this affects less than 1% of the working population. As for Social Security Disability Insurance (SSDI), only 32% of claims are approved, and it can take up to five months to get a decision. Appeals can take over nine months to resolve.
Getting the Financial Protection You Need Through Disability Insurance
Disability insurance is an effective way to help protect your income and help you — and your family — maintain your standard of living in the event of a disability. While many people think of disabilities, as accidents, many of them are caused by illnesses. Diseases such as heart disease, cancer, arthritis, and others can impact your ability to earn an income. When you have disability insurance, you will be able to replace some portion of your income should you become unable to work due to illness or injury.
The Two Types of Disability Policies
Disability insurance benefits can be used to pay for any expenses incurred while you are out of work, such as mortgage payments, bills, loans, tuition, groceries, and more. You’ll need to explore both types of policies available: short-term and long-term.
Short-term disability insurance (STD) can replace up to 80% of your income for a short time period, usually three to six months. This type of insurance is often provided to you through your employer.
Long-term disability insurance (LTD) will keep you protected if you incur long-lasting or permanent disability. While this is sometimes offered through an employee benefits package, it is more often purchased separately as an individual policy. LTD benefits are created to persist over numerous years, even through retirement, protecting up to 80% of your income if you are unable to work.
The Features of Disability Policies
Each policy will vary as to its monthly benefit, but all have the following:
A premium — This is the amount you pay for the policy, and it is dependent on a number of factors including length, type, benefit amount, and more.
A benefit — This is the amount you can receive each month that you are unable to work. It should equal 60–80% of your current salary.
A benefit period — This is the length of time in which benefits will be paid to you. STD policies typically don’t pay benefits longer than one year, but LTD policies can persist until retirement.
A waiting period — This is the amount of time you must wait after you are disabled before you will receive benefits.
A disability definition — Every policy will have a specific definition of what qualifies as a disability or partial disability.
To ensure you have the right coverage for you needs, be sure to ask specific questions about your policy.
What Questions to Ask About Disability Policies
It is important to ask your insurer specific questions concerning your disability policy to make sure you have the coverage you need. For STD policies offered by an employer, you may have limited options, but if you are choosing your own STD or LTD policy, you will be able to personalize it to fit your goals. Here are some questions to consider:
- What amount of coverage do I qualify for?
- When will my benefits begin, and how long will they continue?
- Can my premiums increase over time?
- Can my policy be cancelled or changed?
- Will these benefits keep pace with the rate of inflation?
- Who and what will determine if I am considered disabled?
In addition, you will want to explore other riders to see if added protection will better help you meet your goals. Riders can include a student loan protection rider or a basic or enhanced partial disability benefit rider, among others. You may also want a future purchase option that allows you to increase coverage as needed.
Get Protection in the Event of Disability
Disability insurance can keep you and your family financially strong in the event of a disabling injury or illness. But you must have the right policy on hand — and that’s where we come in.
At Schuetz, we have the expert knowledge you need to choose the right disability policy for your specific needs. Contact us today and let us help you create a personalized policy that will provide you with peace of mind for your family’s future.
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