You are young and vivacious and buying disability insurance is probably not very high up on your list of things to do. Besides, you work a desk job so what are the chances you will ever need it?
No one expects to become disabled, yet it happens every day and usually without warning. Having disability insurance is an effective way to protect your lifestyle in the event you are no longer able to earn and income.
What injuries and illnesses account for the most disability claims?
This chart is a breakdown of the types and relative prevalence of disabilities drawn from disability insurance claims at the end of 2006.
According to the Health Insurance Association of America your chances of having a disability that will last longer than 90 days is about 30 percent if you are between the ages of 35 and 65. You may think of a disability to be something major but did you know that many disabilities are the results of broken bones, troubled pregnancies, anxiety troubles, or other events of the like?
Unless you are rich beyond your wildest dreams then you need to consider having disability insurance. What would you do if your income suddenly stopped coming in? No coverage can mean your debt piling up and putting undue financial stress on top of your disability.
Many people think that just because they have disability coverage through their work that they do not need private coverage. But the problem with most work sponsored programs is the fact that they only pay out 60 percent of your salary and they typically cap the pay out at $5,000 per month or $60,000 per year. If you are a high salary earner you can see how this amount may in fact be less than 60 percent for you. Add to that the fact that all benefits paid out are taxable because the employer is the one paying for the plan. Now that percentage has dropped again.
There is Social Security benefits that can be realized to help, but they are among the hardest to obtain. Just to qualify you have to have been disabled for at least a year and have no hope of recovery. Even if you do meet the requirements, the typical benefit is less than $2,000 per month.
To that end you may need to consider at least getting supplemental insurance or full blown disability insurance if you have none but the process can be daunting. Here is what you need to look for:
- Company Strength: Before you make any decision about which provider you go with check out resources such as moodys.com, standardandpoors.com, and ambest.com where you can go and see all the different providers strengths and weaknesses. At these online resources you will get an unbiased glimpse into the companies so that you can make an informed decision.
- Find Non-Cancelable: There are three types of terms that will determine how easy it is to renew your policy. The first is the non-cancelable contract and is worth it if you can afford it because it locks in your rate for a set amount of time and does not let the provider drop your coverage. The second, less desirable plan, is the guaranteed renewable plan which won’t let the provider drop you but will let them raise your rates at their discretion. The last of the three and the one to avoid is the conditionally renewable policy which lets the provider put any conditions it wishes inside the plan.
- Define ‘total disability’: Look for the terms ‘own-occupation’ and ‘any-occupation’ when obtaining a disability plan. This is how your disability will be viewed. If you get own-occupation you will get disability benefits if your disability stops you from doing the job you had before the disability occurred. Even if you are able to do other part time work somewhere else that is not related to what you were doing, you will still receive benefits. However, if you have any-occupation then your disability will have to be so severe that you are unemployed and unable to work at all. Many providers will start you off as own-occupation and move you later on to any-occupation so you have to be aware of that.
- Seek Partial Disability: Obtaining partial or residual disability means that you will get benefits if your disability still allows you to work but at a reduced capacity. For example, if you normally worked a 40 hour work week and your disability knocks you down to 20 hours, then you would receive benefits in proportion for the other 20 hours you cannot work.
- Disability Insurance Riders: Riders are provision put into your plan that allow for change down the road. These are a good idea if you are younger and two that you will want to take a good look at are the future purchase option rider, which will allow you to add coverage when you make more money, and a rider that will adjust with inflation.
While there is no set price for the cost of coverage, you can expect to pay between one and three percent of your annual income. That is because the price you will pay depends on your age, gender, health, coverages, and other factors of the like.
One big factor that determines the premium price you will pay is the elimination period. This is the time that it takes for your benefits to kick in after the disability has occurred. Most people go with 90 days but you can get anywhere from 30 days to 720 days. The longer the elimination period, the cheaper the premium. Just be sure you can cover the cost of everyday living until your benefits kick in.
Another big determining factor is the term of the plan. Most companies will offer to cover you from two to five years, or set the term by age like 65 or 67. Many people choose to go until the age of 65 as they will have Social Security to rely on at that stage in their lives. Basically, the longer term your policy is, the more expensive it will be.
Finally your occupation is a huge factor when it comes to coverage. Providers will look at what you do for a living and determine how likely it is that they think you could become disabled. The more likely they feel you could be disabled, the higher your premiums will be. If you have a job such as construction, you may not be able to get coverage with a top name provider. You will still be able to get coverage with a smaller provider but you will likely get a stripped-down plan without all the fancy provisions. Still, something is better than nothing; especially if you find yourself with a disability.