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do you need disability insurance
If you were to sit down and make a list of your most valuable assets, you might include your
home, your car, and maybe some antique furniture or artwork. However, you might have forgotten
to list your most important asset - yourself.
That's right, you! You're the one who gets up every morning to earn a paycheck to support your
lifestyle. A period of poor health (by accident or illness) could seriously affect your financial
condition. You insure your other valuable assets such as your home and car, but do you have
insurance on your ability to work? This kind of insurance is called disability insurance.
Group or Individual Coverage?
Many people work for employers who provide disability insurance as a paid employee benefit.
Being part of a group plan has some advantages. Generally your premiums are lower, your
company has done the research for you, and many times you are not required to have a medical
exam. However, your coverage may end when your employment ends.
Having your own policy can have advantages as well. Although you have to qualify medically,
once your insurance is approved coverage remains in force as long as you pay your premiums.
You can tailor your coverage to your specific needs and often get a more comprehensive policy.
Since individual policies are paid with after-tax dollars, the benefits paid are tax free. On the other
hand, if you are covered at work and your employer pays the premium, you will have to pay
federal income taxes on your benefits.
The Waiting Period
This is the time between when you become disabled and when you start collecting benefits.
During the waiting period no benefits are paid to you.
For short-term disability insurance provided by your employer or the state, the waiting period can
range anywhere from 0 - 14 days.
For long-term disability group or individual policies, it can range anywhere from one month to a
couple of years. Generally, the longer the waiting period, the less you (or your employer) pay. As
a rule of thumb, the 90 day waiting period is usually the most cost efficient!
The Benefit Period
One long-held theory regarding disability insurance asserts that an insured would have little
incentive to recover from an illness or injury if their policy paid a benefit equal to 100% of their
salary. For that reason, most policies cover between 60% - 70% of your income.
Short-term disability policies generally are provided by your employer and can pay for up to 52
Long-term disability policies pay for a specified number of years as outlined in the terms of the
policy. This period of years is called the benefit period. Some common benefit periods are 2 - 5
years, with the best policies paying until age 65.
Doesn't Social Security Provide Me with Disability Coverage?
It doesn't cover short-term disability or partial disability. Your disability must be TOTAL - expected
to last at least one year or result in your death.
If you are approved there is a six-month waiting period before benefits begin.
It's difficult to qualify. More than half of all disability claims are denied by the Social Security
And What about Workers Compensation?
Workers compensation only pays benefits if your disability is work-related (e.g. injured on the job),
so it offers only limited disability protection. How much you get and what disabilities are covered
varies by state. For information on your state, visit www.workerscompensation.com.
Don't Take Your Health for Granted
Even the healthiest of us can get seriously sick or injured. Sometimes there's nothing we can do
about it. But we can prepare for the financial impact a disability may create for us. If you have
coverage through your employer, you were probably given the details of the plan when you were
first hired. It might be a good time to review those details (the waiting period, the percent of
income your policy will replace). If you don't have coverage through work, think about what a longterm absence from work will mean to your finances. The cost of the premiums might be well worth
the coverage you'll get if you do become disabled.