Disability Insurance | The Long and Short of It

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It’s interesting to see how most deal with everyday risks. We insure our home, car, health, and life, but in too many cases, we forget about our ability to earn an income. We forget about Disability Insurance.

Certainly, most of us consider our home as our most important asset and we’re going to make sure it’s protected from everything from the inside out. But when you stop a moment and think about it, isn’t your ability to earn your most important asset?

Do you really believe social security disability is going to replace your income without you having to bring a lawsuit for benefits? If you earn a paycheck from a company or from yourself, you need disability insurance.

Disability insurance can be confusing because there are several types of coverage and many options that will determine whether you have a good policy or a great policy but we can help with that. Here is what you need to know before you get started.

What is Disability Insurance and Why Should I buy It?

Disability Insurance was designed to financially help workers when they have become disabled and cannot work. Although the benefits, normally paid on a monthly basis, will not totally replace a worker’s income, they are not taxable and are typically sufficient so the worker will not have to consider bankruptcy or living off of friends and family.

There are different types of coverage for different needs and there are specific qualifiers that determine the benefits (own occupation and any occupation) that we’ll discuss later in this article.

Yes, there is Social Security Disability benefits available for workers who are disabled but generally, it can take a year or more to get benefit approval and a large number of claimants have to get an attorney involved to help them with their case.

If you trust your government will provide for your financial needs, there’s probably no reason to continue reading. If, however, you’re not sure about trusting the government with your livelihood, by all means, finish reading this article.

What types of Disability Insurance are there?

The primary types of Disability Insurance are long-term disability insurance and short-term disability with the difference being obvious. Although both types are offered by many employers, long-term disability policies are typically purchased by individuals and self-employed persons.

Long-Term Disability

Long-term disability insurance typically starts paying disability benefits after other benefits have been exhausted. Usually, employees will have short-term coverage through their employer, PTL/Sick time, or even vacation days that can keep them afloat for about three to six months before the long-term disability benefits kick in.

Long-term disability insurance is very important since the average duration of disability is almost three years and according to the Council for Disability Awareness, one in four workers in their twenties will become disabled at some point before retiring.

Unless you have plenty of liquid assets that you can access, going without some type of disability insurance is rather foolish, to say the least.

Short-Term Disability

Short-term disability insurance is for workers who become disabled for a few months or so and most policies will pay out for six months to a year. With short-term coverage, the waiting period (elimination period) is usually a couple of weeks; which makes good sense since most people have less than one month’s living expenses set aside.

Long-Term DisabilityShort-Term Disability
Generally replaces 40% to 60% of a worker’s income.Generally replaces 60% to 70% of a worker’s income.
Benefits are payable while the insured is disabled for the number of years selected or until age 65 or retirementBenefits are payable from a few months to a year.
The waiting period before benefits are payable is generally 90 days or more.The waiting period to receive benefits can be as little as two or three weeks.

Employers that offer group health benefits will typically include short-term disability coverage but long-term coverage is unusual. Most short-term policies will also pay a percentage of the benefit if the policyholder is partially disabled or can work less than a full schedule or work light-duty tasks if they are manual labor employees.

Disability Insurance Features and Riders

The better disability policies will contain most of the features mentioned here but if not, they can typically be added to the policy as a rider. Disability insurance companies have different policy provisions so it’s important to discover what is and isn’t in a policy before agreeing to it.

  • Capital Sum Benefit – This represents a lump sum benefit that’s paid for certain injuries or illnesses that result in the loss of sight in one eye or the loss of a hand or foot. The benefit is generally 12 times the monthly benefit and is paid on top of any other benefits provided by the policy.
  • Own occupation or any occupation – This wording in your policy is critically important. Own occupation means that your disability prevents you from performing the job you are qualified to do. Any occupation means that if you can do any work, you are not considered disabled.
  • Elimination Period – Your elimination period represents the amount of time before your benefits will begin after your claim is approved. The elimination period directly impacts your premium payment. A longer elimination period will reduce the cost of disability insurance.
  • Exclusions & LimitationsExclusions and limitations represent the causes of disability that are not payable such as pre-existing conditions. Limitations represent benefit limitations that result from certain types of disabilities.
  • Waiver of Premium – This rider provides for the insurance company to waive your disability insurance premium once you have been disabled for 90 days or for the length of the elimination period if less than 90 days. Some companies will waive the premium payment after your benefits have ceased.
  • Rehabilitation BenefitThis benefit helps pay the cost of a rehabilitation program and designed to help you get back to work.
  • Renewability ProvisionsThis provision determines if your policy is renewable each year as long as premiums are paid. Look for the terms Guaranteed Renewable and
  • Residual Disability Benefit – This benefit (usually a rider) provides for the insurer to pay a partial benefit if the insured is partially disabled.
  • Transplant and Cosmetic SurgeryThis benefit provides for the insurer to pay benefits if you donate a transplant organ or undergo surgery to improve appearance or correct disfigurement.

Disability Insurance Companies to choose from

Although there are many disability insurance companies to choose from, we believe those that have the best financial ratings should be considered because they demonstrate they are financially capable of paying benefits for decades if needed.

Insurance CompanyA.M. Best Rating
Guardian/BerkshireA++
MassMutualA++
MetLifeA+
PrincipalA+
AmeritasA

The Bottom Line

Of all the things you have that you should insure, whether you insure your car, insure your boat, insure your home, insure your health, or even insure your life; your ability to earn an income should be at the top of the list. Regretfully, there is a lot of people out there who have never considered this until it’s too late.

Your risk of becoming disabled as a result of an injury or illness is much greater than your risk of dying during your working years, and because of this, we strongly recommend if you don’t have disability insurance now, you consider this risk and mitigate it today.

Frequently asked Questions

What are the chances of becoming disabled?

Statistics indicate that a 35-year-old has a 50% chance of becoming disabled for a 90-day period or longer before age 65. About 30 percent of Americans ages 35-65 will suffer a disability lasting at least 90 days during their working careers.

How much does disability insurance cost?

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Your cost for disability insurance is calculated based is based on your income, the waiting period you select, and the number of years you wish to be covered. There are also several riders that you can select to broaden your coverage.

Can I buy disability insurance if self-employed?

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Yes you can and you certainly should buy disability insurance. You will simply need to offer acceptable proof of your income so the insurance company can determine your benefit.

Should I carry short-term or long-term coverage?

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You should carry both long-term and short-term disability insurance unless you have the resources to pay living expenses for during the elimination period for long-term coverage. Many workers get short-term coverage through their employer.