Clearing The Air About Disability Insurance

Disability insurance could be more accurately termed income insurance. It is a type of coverage that pays benefits in the event you can't work due to illness or injury. Benefits generally run in the range of 60 percent to 70 percent of your regular income.

A short term disability insurance policy generally pays benefits from 90 days to one year while a long term policy pays benefits up to two years, five years, until age 65, or for life, depending on the policy selected. The longer the benefit period, the more expensive the premium will be.

Why Is Disability Insurance Needed?

While health insurance helps cover the cost of doctors, hospitals, and medicine, disability insurance covers income lost while unable to work. Without disability insurance, paying for everyday expenses while unable to work necessarily means draining your bank account. Covering lost income from savings means these funds won't be there later.

Almost fifty percent of home foreclosures are related to a disability as are roughly half of all American personal bankruptcies. Studies show that over 30 percent of American workers will suffer a disability lasting 90 days or more and almost 20 percent of workers will have a disability that keeps them from working for at least a year. In addition, an American worker is more likely to become disabled than killed at every age between 20 and 65.

The Government Will Cover Me, Right?

American workers can be eligible for disability coverage from the federal Social Security Administration, but keep in mind:

**The disability must be expected to keep you out of work for at least one year.

**The first payment from the government will not be received until at least 6 months after the disability has occurred.

**Almost 70 percent of first-time Social Security disability claims are denied.

**Most claims that are ultimately approved only happen after the claimant has retained a disability lawyer to assist.

Disability Insurance Options

As with other types of insurance, disability insurance coverage can be crafted to fit your specific needs and budget. Common options include:

**Elimination Period: This is the period of time after your disability before benefits are paid. Typical periods include 60, 90, and 180 days. The shorter the period, the higher the premium.

**Benefit Period: This defines how long benefits will be paid. The longer the payout, the higher the premium.

**Residual Coverage: This identifies how you will be covered if partially disabled (i.e., when the doctor has deemed you can work part-time). Without this option, all benefits are stopped at the point your doctor says you can work in any capacity.

**Renewability: This covers how and when the insurance company can change your policy. Options include:

oNon-Cancellable/Guaranteed Renewable: The insurance company cannot legally change your premium or benefit without your consent, regardless of whether your income falls

oGuaranteed Renewable: The insurance company has the right to change your premium at any time with state approval.

**Exclusions: These are stated circumstances under which benefits will be limited or not paid at all. Pre-existing conditions are often excluded for the first two years of a policy.

Is Disability Insurance Worth It?

Compared to the cost of paying daily expenses from your bank account for an extended period of time, the cost of a disability insurance policy is small. An independent agent can get quotes from several providers that will enable you to compare before buying.