According to the Pew Research Center, about 42.5 million Americans live with disabilities. Leading causes of disabilities in the US include accidents and illnesses like cancer, diabetes, arthritis, back pain, and others.
Most of these causes are not work-related, hence not covered by the workers’ compensation insurance provided by employers.
That creates the need for disability insurance to help protect your income if you’re unable to work due to a disability.
What is Disability Insurance?
Disability insurance is also known as income protection insurance or disability income insurance. It’s designed to provide financial support if you suffer an injury or illness that renders you unable to work.
Your income replacement policy replaces a portion of your earnings, and you continue getting a percentage of your pre-disability income.
That protects you from total financial ruin as you can afford to cover expenses while recuperating from the condition.
Types of Disability Insurance Policy
There are two types of disability insurance coverage, namely:
- Short-term disability insurance: This provides benefits for a limited period within which you can’t work due to a disability. The coverage period may range from a few weeks to up to 6 months.
- Long-term disability insurance: As the name goes, this policy provides financial protection for an extended period. Coverage period may range from several years to retirement age. Go for this policy if you think you won’t be able to work for a long time due to disability.
How Does Disability Insurance Work?
Disability insurance works following certain criteria stipulated in the policy, including:
Definition of disability: Disability insurance defines disability as “own occupation” or “any occupation”. That specifies how your policy defines disability: Is it the inability to perform any occupation or your occupation?
Elimination period: This is the waiting period before benefits start, usually a few days to years, depending on the type of policy. The shorter the period, the higher the premiums.
Benefit amount: This is the percentage of your pre-disability earnings that you’ll be receiving. You should choose a benefit amount that matches your needs.
Benefit period: This is the duration you’ll be receiving benefits. Depending on the policy, it may range from a few months to several years, or till retirement age.
Disability Insurance Premiums
Insurance carriers consider several factors when determining your disability insurance premiums, including occupation, coverage amount, health, age, and others.
As a general rule of thumb, disability insurance may cost you between 1%-3% of your annual salary. So, you can expect to pay anywhere between $25-$500 per month based on policy type and benefit amount.
Do employers Offer Disability Insurance?
Yes, some employers may offer group disability insurance, but this only provides basic coverage to workers. So, you may still need to purchase individual disability insurance to get sufficient coverage and have more control and flexibility.
Are Disability Insurance Benefits Taxable?
Individual disability insurance benefits are tax-free. That’s because premiums are paid with after-tax dollars, hence the benefits are not considered taxable income.
However, group disability insurance benefits are taxable. That’s because employers pay premiums with pre-tax dollars, hence the benefits are considered taxable income.
How To Get Affordable Disability Insurance
The benefits of disability insurance cannot be underestimated. It helps you avoid facing financial ruin and hardship. That ensures you can continue to meet your financial obligations if you can’t work due to a disability.
To get affordable disability insurance, get insurance quotes and compare rates from at least 3 insurance carriers.
Alternatively, talk to an independent insurance agent. They work with a network of the best insurance companies. Hence, they can help you get cheap rates and discounts you may not access on your own.