What is Disability Insurance and Why Should You Own It?

Disability Insurance Explained

Most people know someone that has had health issues or been involved in an accident that left them unable to work for an extended time. This is hard watching someone struggle to make ends meet during this time, and even harder to imagine that it could be you or a family member.

Have you ever thought about how hard it would be if all of sudden you had an income loss for an extended amount of time because of illness or injury? No doubt it would be stressful, frustrating, and probably a little scary. Well, the good thing is you can fill this gap in your financial safety net with disability insurance.

What is Disability Insurance?

Disability insurance is designed to replace some of your income (usually up to 60%) if you are unable to work because of illness or injury. Disability insurance benefits are used to help pay bills, such as a mortgage or car payment while you are out of work recovering.

Disability insurance is broken down into 2 types of coverage:

• Short Term Disability
• Long Term Disability

What is Short Term Disability Insurance?

Short-term disability coverage is designed to cover for a short period of time, usually 3-6 months after an injury or illness. These benefits usually kick in around 2 weeks after your doctor confirms you are disabled.

Short-term disability will cover up to 70% of your salary (depending on your policy) and can cost 1-3% of your annual income. Short-term disability tends to be more expensive than long-term disability Insurance.

Some states require employers to provide short-term disability but no laws have been passed requiring long-term disability. But you may be able to purchase long-term disability through your employer.

What is Long-Term Disability

Long-term disability is defined as coverage that last at least 2 years and coverage can last to you reach age 65. How long the coverage lasts usually depends on what type of job you have. The more dangerous the job the less coverage you will be able to qualify for.

We recommend if you are looking at disability insurance that you go with long-term coverage. Although it will be cheaper to purchase a long-term disability policy through your employer, buying an individual policy ensures you will have coverage if you change jobs or become unemployed.

You are also able to tailor your long term disability to fit your individual needs. We always recommend getting coverage for at least 5 years if possible to cover costs that your emergency fund won’t cover.

You are able to choose an elimination period. The elimination period is the time you have to wait before benefits kick in. The longer the elimination period, the cheaper your premium will be. The average elimination period is 90 days or 3 months.

How Much is Disability Insurance?

Premiums for disability insurance whether it’s short-term or long-term usually cost around 1%-4% of your annual income depending on your age, health, and amount of coverage desired.

So if your annual salary is $75K you can expect a premium between $63 to $250 a month. You can lower your premium by selecting a longer elimination period.

Also when shopping you will want to look for a non-cancellable policy. These types of disability insurance cannot be cancelled if you change jobs or a change in health.

Who Needs Disability Insurance?

Did you know there are almost 10 million disabled workers in the United States. While this number is hard to believe it’s predicted that more than 25% of Americans in their 20’s will become disabled before reaching age 65.

Most long-term disabilities can attributed to cancer, heart problems, diabetes, and arthritus/back pain. While you feel generally healthy now, no one can predict there health in the future.

If you have a job that is vital to your household finances then you need a disability insurance policy. Whether you own one at work or an individual policy, disability insurance is a must.

Is There Anything Not Covered?

Disability insurance is designed to only pay you about 60% of your income. It is not a long-term care policy or health insurance so won’t cover these costs.

Pregnancy is usually not covered by long-term disability but short-term coverage does cover birth. Also if you have complications with your pregnancy, a long-term policy might cover you if it’s ordered by the doctor and you had the policy in effect prior to getting pregnant.

Other events not covered are:

• Self Inflicted Injury
• Drug Overdose
• Driving while intoxicated
• Injury while committing a crime

It’s important to make sure you look at your policies exclusions because this does vary by company.

How to Obtain Disability Insurance

The easiest and usually less expensive way to obtain disability insurance is through your employer. Usually no exams are required, but you may have to wait till open enrollment before applying.

If your employer doesn’t offer long-term disability then seek out an reputable independent agency, like ourselves, to help you find the coverage that fits your needs.

You can also add a disability income rider to some term life and permanent life insurance policies. These types of disability insurance are limited in coverage and amount of benefits than an individual stand alone disability policy.

Our Thoughts

Disability insurance is a very important tool to have in your financial portfolio. It is there when you will need it the most if you were to become sick or injured for a significant amount of time.

Here at EasyQuote4You we can help you find the write disability policy to fit your needs. If you have any questions or would like a quote, don’t hesitate to give us a call.

Frequently Asked Questions