Disability insurance may strike you as a necessity if you have a loved one or significant other who is a specially-abled person or who experiences a type of physical or learning disability. However, that is not quite true. You see, you can use disability insurance even if you are not well, have hurt yourself, or cannot work due to any reason. So if you are an active member of the economy’s workforce, having disability insurance is extremely important. Without the protection of disability insurance, workers and their families are most likely living on the edge with no backup funds in case of illness or injury.
But for those unfamiliar with the term ‘disability insurance,’ here is what you should know.
What is Disability Insurance?
Disability insurance is income insurance. It provides an income if a worker has become sick or has hurt themselves due to which they are unable to work. In other words, the beneficiary has a backup income if they face a temporary loss of income. This kind of insurance will pay up to 60% of the beneficiary’s income on a tax-free basis. The policy premiums for disability insurance will range between 1.5% to 3% of your gross income. Some policies may also include bonuses and commissions as incomes.
The minimum age required to apply for disability insurance is 18 years, and the maximum goes up to 60 years of age. By this, you can deduce that disability insurance is for the active working population.
So what are the different types of disability insurances?
Types of Disability Insurances
There are two major types of disability insurances: short-term and long-term. The type that you choose depends upon your requirements.
Short-term Disability Insurance
Short-term disability insurance is a way to ensure your income cover monthly expenses for under a year. This policy comes in handy if one needs time off to recuperate from an illness or an injury. Monthly expenses can include utilities, rent, mortgage, or even a car loan. It only comes in handy if you cannot fulfill your core work duties due to a disability or injury.
It also includes policy options that can be designed for short-term disability. It can include benefits lasting from 1 to 3 years, where the benefit can start from $300 up to $3,000 (subject to your income and occupation class).
You might still be skeptical about the importance of having a short-term disability when you have a savings account. But, often, people do not save enough to last them up to a year. Their savings are usually limited to 6 months or less. You might think this claim is frivolous, but the results of the 2014 survey conducted by Consumer Disability Awareness backs it up. Here 57% had only enough savings to last half a year.
The benefit of Short-term Disability Insurance
Short-term disability insurance is a way of protecting you as an employee and your employer if you cannot show up to perform your duties for some time. When such an event happens, you as an employee can file a claim to receive the income. This income is specified in the benefits of your disability insurance policy.
So if you ever get injured, get sick, or are pregnant, short-term disability insurance is your best solution to getting income while you are unable to work beyond your paid sick days. But that can be done by getting health insurance. Well, the answer is wrong because health insurance will only cover your medical bills. In contrast, short-term disability insurance will be used to pay for rent or even buy groceries.
Long-Term Disability Insurance
Long-term disability insurance is similar to the short-term version except for the fact that it lasts longer, starting from a minimum of 5 years duration to your retirement. You can claim a long-term disability as long as you cannot work till the age of 65 years. The long-term disability insurance will kick in at the earliest after ten weeks from when you stopped working. It can also start a maximum of a year later from the date you could not perform your duties.
However, five years is usually considered enough to provide coverage, according to the Council for Disability Awareness. The income that you receive in this policy plan can range between 50 % to 80% of your gross income in fixed monthly benefits. There are two definitions within this insurance policy which are ‘Own Occupation and ‘Any Occupation. The former type gives a benefit if you are unable to work in only your profession. Whereas the latter applies if you are unable to perform any work-related action.
Benefits of Long-Term Disability Insurance
Long-term disability triumphs over the short-term version because the duration of benefits that it provides is longer. It is a form of replacing your salary by giving you between 50 to 80% of the income every month to fulfill all of your expenditures, including the medical and rehabilitation-related ones.
Not only does it provide you benefits for a longer period, but if you fall under the category of ‘Any Occupation,’ you can claim the income even in the event of not being able to do any work.
Other Types of Disability Insurance
There are other types of disability insurances present such as:
- Mortgage Disability Insurance: It covers your mortgage payments if you are not able to work due to an illness
- Supplemental Disability Insurance: It covers the gap between the number of expenses you have and the benefits paid by employer-sponsored disability plans.
Disability insurance is a necessity in your life because let’s face it, none of us can expect to always be on our toes all the time. We all get sick or incur injuries which can put us out of commission for a while. But with income coming from your insurance plan, you don’t need to worry about working while you recover.
So if you are looking to get yourself on a disability insurance plan, drop us a message here.