Disability insurance can provide invaluable financial protection, so that you can focus on recovery without worry over financial implications of being unable to work. But how do you know if disability insurance is right for you, and if so how to get it? This guide provides all the details and knowledge about this topic so that you can make informed decisions for your own financial security.
What Is Disability Insurance?
Disability insurance provides monthly benefits if you become disabled and cannot work, giving a monthly payout based on two types: short-term and long-term.
Short-term disability insurance covers you if you become temporarily unfit to work for less than one year due to non-permanent medical issues, such as giving birth, recovering from surgery or experiencing a serious illness.
1) Who Needs Disability Insurance?
If you work, long-term disability insurance should be an integral component of your plan. While disability is unpredictable, it does happen–according to the Social Security Administration, workers on average receive benefits for nearly two years on average.
Should a bus hit you tomorrow, disability insurance might not provide enough financial protection for both you and your family. Luckily, disability coverage is fairly easy to secure; just remember to factor in premium costs into your savings plan for best results. Disability coverage should always be part of any comprehensive financial plan.
2) How Much Disability Insurance Do I Need?
Your need for disability coverage depends on a range of factors, including expected duration and size of income loss, so the first step should be assessing your current finances.
How much are you earning, your debt obligations, mortgage loan amounts owed and whether or not any children need support? Once you have an accurate picture of where your finances currently stand, you can start considering how they would be affected if disability occurred and decide how much disability coverage should be purchased.
3) How Does Disability Insurance Work?
Short-term disability insurance works differently from long-term disability. Instead of paying a monthly premium to an insurer, which goes towards building up an accumulative fund.
When disabled, funds from your fund can help cover your expenses. If your contributions to it fall below a threshold, however, no benefits will be received; long-term disability insurers provide monthly benefits regardless of what sum is contributed by policyholders.
4) What Does Disability Insurance Cover?
Short-term disability will help cover living expenses while you recover from an illness or injury, while long-term disability coverage provides income should you become disabled and are unable to work for an extended period. Most policies have an initial waiting period between two and five years during which no benefits are received.
5) How Do I Get Disability Insurance?
If you don’t already have disability insurance, your first step should be speaking to an agent and determining how much coverage is right for you. Shop around until you find an appropriate policy with affordable fees attached; once found, take action by either speaking with your HR representative or visiting their benefits website and sign up.
6) What Are The Different Types Of Disability Insurance?
There are various types of disability insurance coverages, such as short-term, long-term and permanent policies. Short-term policies protect you if you become disabled for less than 12 months and may be offered through your employer.
Long-term disability insurance protects you if a medical condition prevents you from working for more than 12 months and permanent disability insurance provides cover in case you become disabled and cannot perform your job duties.
7) How Do I Choose The Best Disability Insurance?
When choosing a disability insurance policy, several key elements must be taken into account, including your level of coverage, length of employment and annual earnings. Care should also be taken in reading through and understanding exactly what is covered and what is not. Your level of coverage – both its amount and type – are just as critical.
8) What Are The Tax Implications Of Disability Insurance?
Disability insurance premiums are tax deductible for both short-term and long-term policies, though only long-term disability payments require taxes; since you’ll likely pay less in taxes as you’re no longer working, this makes for a good trade-off. Short-term payments don’t count as income since they’re considered insurance claims rather than income.