Disability insurance may not be as familiar to you as home insurance, health insurance, or car insurance, but it is just as important.
When you need to take time off work due to illness or injury, disability insurance is there to supplement your paycheck and make sure you don’t lose out on it while you recuperate.
It’s undoubtedly an important type of insurance, but one that is often overlooked.
So what exactly is disability insurance, and how does it work? The definition of disability is defined by the social security administration (SSA), it is a federal program designed to provide assistance to people with disabilities.
Download our FREE disability Insurance checklist to see if you qualify for these disability programs.
When a person meets a certain medical condition, the SSA will provide financial benefits for people with disabilities.
To streamline your application process, connect with our licensed disability agent now to help submit your claim application today.
Simply put, disability insurance (DI) protects your income. It replaces part of your monthly income if you’re unable to attend work due to illness or injury.
A Disability policy doesn’t just protect your finances and give you peace of mind, but the security of your loved ones who may rely on your paycheck.
You can use the benefits you receive from your disability insurance however you want. You can use them to pay monthly bills, or for everyday expenses such as groceries or childcare costs.
Disability insurance is also sometimes referred to as disability income insurance and income protection insurance.
There are several kinds of disability plans including social security disability insurance (SSDI), social security Income (SSI), and plans that include paid family leave (PFL). In this article, we will cover Disability insurance in two categories; that is, short-term disability insurance and long-term insurance.
Short-Term Disability Insurance
If you experience injuries and ailments that mean you’re unable to work for a short period of time, you can receive benefits from short-term policies.
This type of temporary disability insurance is normally provided through your employer’s group plan.
It is possible to purchase an individual short-term disability insurance policy through some companies, but this isn’t recommended by most financial experts.
This is because when you take into account the cost of the premiums and the amount you would receive in benefits, it doesn’t make much financial sense.
If you’re unable to get short-term coverage free of charge from your employer, however, you should set up an emergency fund.
Short-term disability insurance usually replaces between 40% and 60% of your pre-disability income, and these benefits usually last around 3 to 6 months. The cost of disability insurance plans will vary and the compensation benefits will pay out a monthly disability benefit.
However, some policies can payout for as long as two years. Your benefits normally start 14 days from when disability occurs or after the disability claim is filed.
Long-Term Disability Insurance
Meanwhile, long-term disability insurance protects your income if you are affected by illness, injury, or disability for an extended period of time.
Long-term disability insurance covers serious injuries and illnesses that affect your ability to work for several months, years, or even if you’re unable to work permanently.
However, your benefits will come to an end once you’ve recovered from a disability up to a maximum benefit period.
This period may be for a set number of years, for example, ten years. But you can also purchase policies that will continue to pay out until you’re 65 years old.
Long-term disability insurance can be purchased through a group plan, or you can buy your own individual policy.
Long-term disability insurance is more costly than short-term disability but provides a lot more protection.
Long-term disability benefits usually replace between 60% and 80% of your income, and some policies may even replace the income you’ve lost if you need to take a lower-paid position.
Frequently Asked Questions
What Is Disability Insurance?
Disability Insurance covers your income if you cannot work due to injury or illness and gives you financial security during what can be a very stressful time.
It is basically an income replacement if you’re not receiving a paycheck due to injury or illness.
You instead receive a monthly benefit from the insurance company. The kind of coverage you’re entitled to will depend on a number of factors, such as your income and what financial obligations you have.
What Insurance Do You Get With Social Security Disability?
If you’re eligible for Social Security Disability Insurance benefits, or SSDI benefits, you are also entitled to Medicare after 24 months.
The initial 24 months of disability benefit entitlement usually proceeds your entitlement to Medicare coverage, and in this qualifying period, you may be entitled to health insurance from your former employer.
How Does Disability Insurance Work?
Disability income insurance, like all kinds of insurance, is an agreement that is made between insurance companies and policyholders (i.e. you).
The insurance company will pay you a monthly benefit amount if you’re unable to work due to illness, injury, or disability in exchange for payments you make every month.
Disability insurance replaces a percentage of the income you would otherwise not receive if you’re unable to work.
Disability insurance makes sure you won’t fall behind on financial commitments such as bills and covers daily expenses.
A disability insurance policy will tell you how much of a premium you’ll have to pay.
A disability insurance premium is like any other kind of insurance premium, and it’s what you pay every month to keep your coverage.
A disability insurance policy will also provide their definition of a disability.
This will vary, as some policies will pay out a monthly benefit if an injury precludes you from performing your role, but you’re still able to carry out other types of work and your income is reduced significantly.
Meanwhile, other policies will not pay out a monthly benefit in this instance.
A disability insurance policy also outlines how much you will receive in benefits, and they will also tell you how long your benefits will last.
As we explained previously, the benefit period may be set for a number of years, or cover you until you reach a certain age.
How Much Disability Insurance Do I Need?
Generally, your disability insurance benefit should cover 60% of your gross pay, and this is usually what you would take home in your paycheck.
For this level of coverage, you will normally pay between 1% and 3% of your annual salary in premiums, although the exact amount will vary based on the type of coverage you purchase and how much.
What Is Long-Term Disability Insurance?
Long-term disability insurance is a type of disability insurance that is specifically for those who have an illness, injury, or disability that prevents them from working for several months, years, or if they can’t return to work at all.
Generally, disability insurance lasts for about 6 months, but long-term disability can pay out a weekly benefit for a longer duration of time.
Speak With A Licensed Disability Insurance Agent And Schedule A Phone Call Or Zoom Chat Here for more information on the types of disability insurance and what insurance carrier is right for you.