If you have thought about insurance then you have probably taken out health insurance to cover the costs of your chiropractor and dentist visits, as well as making sure that you have enough life insurance to provide for your family if you were to die suddenly. However, how would you and your family cover the costs if you were suddenly disabled?
If you are injured or suffer an illness and can’t work anymore, your life insurance won’t pay out, because it only becomes active after you die. Plus, your health insurance may cover the majority of the medical costs associated with your disability, but it won’t replace your income when you are unable to work. Imagine the financial pressure that would put on your family, when not only are they dealing with the emotional stress of your illness or injury, all of the medical costs associated with it, but they also have to find a way to put food on the table, pay the bills, and maintain a lifestyle and goals.
That is where disability insurance comes in, as it can insure your income if you are unable to work due to a prolonged illness or injury. Many people are already covered with disability insurance through their employer, but the following tips will show you just how important it is to find out exactly what is included in your employer’s disability insurance policy, and whether you need to supplement your cover.
1 – Disability is more common than death
It is important you check on the disability insurance your employer has for you, because you are more likely to make a disability claim than you are to need life insurance. The probability of being disabled is much higher than that of dying suddenly, for example a 22 year old man is almost eight times more likely to suffer a disability which puts him out of work for three months, than he is to die.
When you are between the ages of 35 and 65 you have a 25% chance of being disabled for a year, and a 5% chance of being permanently disabled. Three out of 10 people between 35 and 65 will be disabled for 90 days or longer, and one person in five between 35 and 65 will be disabled for five years or more before they retire.
If you are under 65 your probability of disability is higher than your probability of death, for example a 32 year old is 6.5 times more likely to be disabled for 90 days, than they are to die.
2 – Policy coverage and options
If your employer has organized disability insurance for you, it is not time to relax yet, because you need to know exactly what type of policy you have, to make sure you are covered for the full range of accidents or illness you could suffer, and that you have enough coverage to continue to live comfortably and provide for your family.
Most employers will organize for a short term policy which will pay around 65% or more of your salary for a period which could be between six months and two years. You should also look into whether any long term cover is provided with your policy.
You will also want to find out about the benefits and features of your policy, so ask about:
- An elimination or waiting period. This is the amount of time you have to wait after suffering a disability before you can receive benefits. A typical waiting period is six months.
- The benefit period. This is the amount of time you will receive benefits from your insurance policy and can be as little as a month, or it can last up to your retirement or death.
- Residual clause. If you are only partially disabled, a residual clause will mean you only receive a portion of the benefit.
- Social Security rider. If you don’t qualify for Social Security disability benefits then this option provides extra benefits.
- Cost of living adjustment clause. This feature allows your benefit to increase at the same rate of inflation.
- Non-cancellable. A non-cancellable policy means the company can’t refuse you cover and they can’t change your monthly premiums.
- Disability definitions. Check the definition of a disability and the types of disabilities covered. Also see whether you will receive a benefit if you can’t perform your regular job, or if you can’t perform any job at all. In some cases you can be forced to take a job outside of your field after suffering a disability because you are not deemed as being unable to work entirely.
- Limit of liability. This limit is the total amount of benefits the policy will pay out.
3 – Your income is your biggest asset
If you had a car accident you can easily replace your car with a new model, if your house burns down you can build a bigger and better one but if your ability to work is damaged, you can’t just go out and get a new you. That is why it is so important to know what type of disability insurance you are covered under through your employer, because you want to make sure it is the biggest and the best type of insurance so you know you’ll receive enough benefits to cover all of the medical costs, as well as all of your everyday and ongoing expenses.
Look at your current financial situation and consider how long you and your family could survive if your income stream suddenly stopped. You probably have an emergency fund which will cover three to six months of your expenses, but add in medical expenses and how long can you go on? Plus, you don’t want your family to miss out on their dreams, you still want your kids to be able to go to college and you still want to be able to afford that nice house and car. While it is shocking to realize how devastating the loss of income coupled with a disability could be, it will only take you a minute to have a chat with your boss about your benefits.
4 – Social Security doesn’t cover it
While there is a disability benefit as part of your Social Security protection, the benefits are not usually enough to cover the medical and ongoing expenses associated with a disability and reduced income. Plus, there are very strict guidelines you must meet to qualify for a disability benefit from Social Security, for example, you will only be paid a benefit if you are unable to perform any occupation. Therefore, if your current job requires you to be on your feet, but an accident lands you in a wheelchair, you are not able to do your previous job, but there are still other jobs you can do, so you won’t receive any Social Security benefit.
Social Security define a disability as:
‘The inability to engage in any substantial gainful activity by reason or any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. A person must not only be unable to do his or her previous work, but cannot, considering age, education, and work experience, engage in any other kind of substantial work which exists in the national economy. It is immaterial whether such work exists in the immediate area, or whether a specific job vacancy exists, or whether the worker would be hired if they applied for work.’
Plus, even if you do qualify there is a five month waiting period for benefits from Social Security and during that time you can be putting yourself and your family under a lot of financial pressure.
5 – Short and long term disability cover
Most companies will organize for a short term disability policy as part of a group plan for all employees. A short term disability policy will pay benefits for between six months and one year, where some may even be extended to two years. These types of policies will also usually have a zero day waiting period, or a maximum of just seven days before you start receiving a benefit.
However, you may want to consider enhancing your disability insurance protection to include long term cover so that if you suffer a disability, you can receive benefits up to 65 when your retirement benefits kick in, or even until death. A long term disability policy will usually have a longer waiting period of anywhere from 30 days to two years, but this is because they are designed to come into effect after the benefit period of a short term policy has ended.
If you’re found that the disability insurance cover offered by your employer is inadequate for your needs, Life Insurance Finder can help you compare policies, premiums and features to give you and your family complete peace of mind.