Disability Insurance: Why You need It and How To Get It

If you get hurt and are unable to work, do have enough money saved up pay your bills? Could you go a few weeks without a paycheck? How will this impact your family? While many of us may be able to get by for a few days without a paycheck, going a week or more without getting paid can hurt us financially.

While other types of insurance protect the things you own, such as a home or a car, a disability insurance policy protects your ability to earn a living. Not bringing home a paycheck can quickly impact your finances, making it difficult to pay your rent or mortgage, put food on the table, and keep your utilities on. When you are able to get back to work, it could take weeks, even months, to get caught back up financially. Learn more about disability insurance and how it works below.

What is Disability Insurance?

A disability policy will pay you a percentage of your salary if you are sick or injured and can’t work. It requires a person to enter into a disability insurance policy and pay a monthly premium. Disability policies can be setup to cover a five period up until retirement age. As long as the payments are made, the policy will remain in effect. Depending upon the policy, they typically pay disability benefits that range from 40% to 60% of your monthly expenses.

Disability policies do include a waiting period. This means there will be a period of time before your benefits will be paid to you. Depending upon the policy, a waiting period can range from a few weeks to a year.

Some employers offer group disability policies to their employees. An employer may choose to pay the premiums on an employee’s behalf as an added benefit. Group disability policies through an employer, however, terminate when an employee leaves the company.

Individuals can also purchase a disability insurance policy. The most common policies purchased are short-term and long-term disability insurance.

What is Short-Term Disability Insurance?

Short-term disability polices typically cover loss of income from an illness or injury for a period of three to six months. They typically pay out 60% of your monthly income and have a waiting period of a few weeks before benefit payments can be received. Premiums run an average of 1 – 3% of your salary, but may be adjusted due to your age.

In some cases, people purchase a short-term disability insurance plan to provide an income stream as they are waiting for their long-term disability plan payments to start. Many employers offer short-term disability as a benefit to their employees. If you receive disability payments under an employer-sponsored plan where the employer pays the premiums on your behalf, you must pay tax on them. If you pay the premiums yourself, any benefit payments that you receive are not taxable.

What is Long-Term Disability Insurance?

Similar to short-term disability policies, a long-term disability plan will pay you a percentage of your salary for an extended period of time. You may receive benefits for a few months or a few years, depending upon how your policy is structured. Long-term disability plans can be designed to pay out 40% to 60% of your monthly income.

People who buy long-term disability insurance policies can decide how long they want their plan to provide coverage. This can range for a period of two years to up until their retirement date. Premiums are paid monthly and are determined based on a range of factors including your age, health history, length of policy, and your salary. Your occupation may impact your premiums, especially if you work in a riskier industry.

A long-term disability plan will typically have a waiting period that can range anywhere between 10 weeks to 53 weeks. Because the waiting period is much longer for this type of plan, many people buy a short-term policy as well to cover this gap.

Who Should Get Disability Insurance?

Whether you are single or have a family, you should consider a disability insurance policy if you work. While we often think of the financial impact that death can have on a family’s finances, the loss of income due to a disability can be far more detrimental. In addition to lost income, there may be mounting medical bills in connection with the disability.

To help secure your financial future, you should consider getting disability insurance. It will help to protect your income stream and keep your finances afloat until you are able to return to work.

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