Medical Care Help Center.

Should You Obtain Disability Insurance?

Nobody thinks that a long-term disability will happen to them but the odds are not in your favor. According to the American Council of Life Insurers, one out of three Americans ages 35 to 65 will become disabled for more than 90 days. One out of seven Americans will be disabled for a period of over five years. Still think it can’t happen to you because those represent freak accident? Well consider the fact that most disabilities are caused by illnesses such as heart disease of cancer. When you are disabled the loss of income can be so bad that if you are not protected you may soon find yourself in the poor house.

Fortunately there is disability insurance. Disability insurance is usually offered though your work sponsored health insurance plan and can cover up to 60 percent of your salary should you experience a long-term disability. Private and supplemental plans can cover up to 80 percent of your salary, but none will offer you 100 percent for fear that you will then never be motivated to return to work. Benefits usually last for a certain period of time or until you reach retirement age. Benefits will usually stop at retirement age as you would no longer then be dependent on work generated income to live. If you have to pay for the premiums yourself, any benefits that you would receive would be tax-free.

Long-term disability plans will vary as much as the colors in the rainbow. Some will offer wonderful coverage and be a bit costlier and some will be cheaper but also full of holes. Typically if you are trying to save a lot of money and go with a really cheap plan you will find it ultimately worthless.

It is worth knowing that there are different types of long-term disability plans and you can either obtain a group plan or an individual plan. A further breakdown follows:

  • Group Disability Insurance Plans: The first thing to do if you are not self-employed is to inquire with your employer to see if they do in fact offer long-term disability coverage. About half of the businesses in the US that are mid to large sized do offer a group plan, but even if your work does it may not suit all your specific needs.

Typically a group plan will cover you for 60 percent of your salary and this can be offset by other benefits that you may receive such as social security or workman’s comp. But many group plans have a cap and if their cap is $60,000 per year and you make $200,000 per year you will receive considerably less than the 60 percent.

Another drawback is that most group policies will limit the time they will pay out benefits to only two years. Once that time is up if you can’t return to work you are left holding the bag so to speak with your bills.

  • Individual Disability Insurance Plans: These plans are for those who are self-employed or for those who are looking to supplement what they have through work. For supplementing this can be great because you can get additional coverage of another 10 to 20 percent above what you will get through your work’s group plan. You may also be able to get individual coverage for six figure salary plus bonus money, which will not ever be offered by a group plan.

If you can afford to supplement it is really a no brainer. You cannot put a price tag on piece of mind and because you never know what will happen from day to day it pays to be covered. That extra 10 to 20 percent could mean the difference of you keeping your house or losing it to foreclosure.

Unfortunately obtaining an individual disability plan can be a tricky business. There are a huge variety of factors that go into determine what your premium will be such as your age, gender, health, occupation, and more. Also the amount of coverage you desire will effect what your premium will be. So there is really no set price as each person will vary according to their needs and their circumstances.

One major consideration to make before you get coverage is to determine how long you could survive after a disability without any help. Every plan will have what is called a waiting period and these can vary from 30 days to 120 days. The shorter the waiting period, the higher your premium will be. So one way to save money on your premium is to go with a plan that has a longer waiting period, but you must be sure that you will be able to weather the storm for the allotted amount of time.

You will then need to decide what riders or extras you want. Some of the riders will cost you, and cost you big, but they can be life savers. For example, ‘own occupation’ coverage will cover you if you cannot perform the exact same job as you did before you became disabled. This can cost you an extra 40 percent on your plan but if you can afford it you may want it.

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