Disability Insurance

What is disability insurance? 

Disability insurance is a policy that pays a percentage of your income if you can no longer work due to an injury or illness. It is probably the most overlooked type of insurance, yet it is arguably the most important.

When people think of a disability they imagine the worst. A freak accident or some other uncommon occurrence, but the reality is people miss work for many different causes like back pain, mental illness, diabetes, arthritis, and heart disease. 

According to the 2017 Disability Statistics Annual Report over 10% of the population between ages 18-64 have a disability. I can not think of anything worse than going from being the family breadwinner to becoming the family financial burden in the blink of an eye. If you were laid up not able to work for multiple years how long would you be able to go without a paycheck coming in? 

What is disability insurance?

Types of disability insurance 

There are two types of disability insurance - short term and long term. Short term is usually for less than a year and could have an initial waiting period of a few weeks before benefits start paying.

 

Long term policies have many different options when it comes to how long the benefit continues to pay if you remain unable to work. For example, you can choose a 1 year benefit period, a 5 year benefit period or until you reach age 65. The longer the benefit period you choose the more the policy will cost. 

Typical questions about disability insurance

Disability insurance policies can be confusing. There are many different options and ways to structure a policy. Here are some questions to get you thinking about what might be right for you. 

1. What percentage of your income can you protect?

2. Is there a specific skill or talent you need to protect?

   (Surgeon, Athlete, Dentist)

3. Is it better to have group coverage through my employer

    or to buy an individual policy?

4. What if I can work part-time or get a different type of job?

5. What qualifies as being disabled in order to get benefits? 

6. What if I have a pre-existing condition?

7. How are my benefits taxes?

8. What factors determine how much the policy will cost?

9. Where should I buy disability insurance?

10. Doesn't workers comp and social security cover me?

How to get disability insurance

#1 Employee Benefits Package

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Some employers offer short and long term disability insurance as part of their benefits package.(very cool) If that is the case for you here are some things to research and consider:

  1. What is their definition of disability? Do you have to be totally disabled for benefits to be paid? 

  2. When does coverage start and when does it end? 

  3. What percentage of your income will you receive? 

  4. If your employer is paying the cost your benefit will be taxed. 

  5. Coverage ends when you leave your employer or if the employer decides to stop offering the benefit.

# 2 Voluntary Benefits through Work

Some employers offer a discounted group policy that you can voluntarily purchase. Here is what you should consider in addition to the items listed above in the employee benefits section:

  1. Limited to no underwriting making it easy to obtain coverage. 

  2. If you pay with pre-tax dollars your benefit will be taxed, but if you pay with after-tax dollars then your benefit is tax-free.

  3. You can not take your policy with you if you change jobs. 

  4. You can not customize the policy to your specific needs.

#3 Purchase an individual policy on your own

Personally, I think this is the best way to go, but it definitely depends on your job type and health history. It does require you to go through an application and underwriting process with an insurance company and it can cost more depending on the options you choose.

 

The best part of purchasing an individual policy is that it is yours. You take it with you wherever you go as long as you continue to make the premium payments. You can also customize the policy to meet your specific needs.