Why is disability insurance so important? Debilitating accidents or diseases are threatening enough on their own, but combine their effects with a forced absence from work, and the situation can quickly become a financial catastrophe. The kinds of misfortunes that befall workers, prompting short or long term absences from the job, take many forms. Disability insurance.
Accidents are the highest single cause of disability, but various illnesses combine to make it much more likely that falling sick will be the force that drives one in three employees out of the workplace for more than three months at a time. Disability insurance was created to help protect employees from the loss of income and benefits that is the all too common reality of disability.
Disability insurance provides money paid out in the event that a worker cannot perform his or her job duties due to illness or injury. Disability insurance may be offered by employers, private insurers, and/or the state or federal government.
On-the-job accidents or work-related illnesses may be covered by Worker’s Compensation. It is every employee’s responsibility to find the coverage that protects him and his family from the ramifications of temporary joblessness resulting from an illness or accident.
Playing the Odds
Disability insurance is often far from the minds of workers. While health, life, and dental insurance consistently rank as the top three most coveted forms of insurance in the workplace, the statistics bear out that the likelihood of suffering a major injury or illness over the course of one’s working life makes disability insurance just as much of a concern, if not more of one.
In fact, a person is more likely to suffer a disability than premature death, which could arguably make disability insurance a wiser investment than a straight life insurance policy. Over the course of a disability, especially a long-term or permanent one, the loss will not only come in the form of one’s weekly income, but in the cessation of employer sponsored medical coverage and savings plans such as the 401K.
Types of Disability Insurance
The main sources of disability insurance are national and state programs, employer-sponsored programs and individual policies from private insurers. Possessing one of these forms of coverage does not rule out the need for the others. Careful scrutiny of the benefits and limitations of each will allow workers to create a package that will protect them to the fullest.
How to get a life insurance policy
National and State Disability Programs
In the United States, disability coverage falls under the Social Security umbrella in the form of Social Security Disability Insurance (SSDI). Eligibility requirements are stringent and coverage is basic, but it is an important safety net laid out for citizens by the government.
SSDI requires recipients to prove that they have extensive physical or mental impairments that can be expected to last for at least a year or to end in death. The application process is long and involved. The vast majority of applicants do not fit the government’s strict criteria. In 2005, 75% of first-time applicants were denied coverage.
Those that do qualify receive a monthly payment that is adjusted to account for annual cost of living increases. The payment may or may not be taxable, depending on individual circumstances. For most workers, living on SSDI alone will leave their families below the poverty level. However, dependents under age 18 and spouses over the age of 62 may be eligible for benefits as well. No benefits will be paid until six full months of disability have elapsed.
The states of California, Hawaii, New Jersey, New York and Rhode Island, as well as Puerto Rico, require and provide short term disability coverage that is deducted from all workers paychecks. Coverage usually lasts up to 6 months.
Employer Sponsored Disability Insurance
Coverage through one’s employer is the most utilized source of disability insurance in the United States. Group disability insurance policies exist as short term disability (STD) and long term disability (LTD). Short term disability insurance pays a pre-determined percentage of one’s income for up to three months, while long term disability insurance covers anywhere from 40 to 60% of one’s income for extended periods.
The methods by which companies provide disability insurance vary widely. Some offer group coverage and pay the premiums in full. Some pay a portion of the premium, while others merely provide the option for group coverage, requiring all participants to pay their own premiums. Any benefits received from a policy paid for by the employer will likely be taxable. If the employee pays all premiums with his own after tax income, any benefits are likely tax-free.
The higher one’s income is, the less likely it will be that employer sponsored disability insurance will cover the costs of joblessness. Many policies specify a monthly limit of $5,000 to $10,000. Combine that with the taxes taken out of each payment, and a disabled worker may find himself taking in much less than the 40% to 60% of his regular salary that he thought he’d be getting from his employer sponsored disability insurance policy.
Another form of compensation offered through the workplace is workers compensation. This coverage kicks in when one is injured or becomes ill because of his or her job. Coverage usually accounts for two thirds of the worker’s pre-disability income. In the grand scheme of accidents and illnesses that affect Americans today, however, a very small percentage is job-related.
Individual Disability Insurance
The individual disability insurance policy offers the opportunity for the most extensive and customizable package. Workers can receive no more than 80% of their pre-disability earnings through a policy that can cost from 1-3% of their yearly earnings. Benefits are income tax free when premiums are paid for with after-tax income. Workers can also use individual disability insurance to supplement the group policy offered through their employers. Since the details of the coverage offered by the insurer vary widely from company to company, all consumers should analyze their options carefully before committing to the policy offers them the protections they need.
How Renewability Affects Coverage and Premiums
One issue that has a large effect on the price and extent of your coverage is renewability. The three general areas of renewability are conditionally renewable policies, guaranteed renewable policies, and non-cancellable and guaranteed renewable policies.
With conditionally renewable policies, the company can change conditions or raise rates at any time. While they are the cheapest option at first, they may become more and more expensive over time and, worse yet, become altered by conditions that will render them virtually useless when you need the benefits.
Guaranteed renewable policies provide consumers with the security of knowing their coverage won’t be dropped. The policies can be altered, however, in the form of raised rates.
Family term life insurance quotes
Non-cancellable disability insurance is attached to the most expensive premiums; but, it offers the most security against the catastrophe of prolonged disability in the future. A non-cancellable policy guarantees you the same coverag