As much as it’s human nature to think of being invincible and reject even the possibility of a disaster that could change any lives, it can’t also be denied that the danger of fortunate events can happen anytime. Disability Insurance needs to be considered for those who are significant financial providers for the family and protect future earnings. Indeed, it is likely to be helpful at some point in life as it provides an income for oneself and the family if unable to work due to a qualifying disability.
What Is A Disability Insurance Policy?
A disability insurance plan involves payment of a certain premium amount to the insurance provider. In exchange, payments can be obtained in case of an unfortunate event resulting in a policyholder’s disability. A disability insurance plan ensures that the policyholders and their families do not face any financial constraints in the future and can seamlessly continue with their life even if their disability does not allow them to earn.
In such cases where the disability does not allow the policyholder to work and earn for the family, the disability insurance plan will provide a certain monthly income for policyholders to not restrict themselves financially. With this, there is no need to worry about monthly incomes, medical bills, basic necessities expenses, etc.
What Are The 2 Types Of Coverage?
Below are two different types of Disability Insurance Coverage:
- STD (Short-Term Disability) Policy
- Waiting period of 0-30 days.
- Maximum benefit period of no longer than two years
- LTD (Long-Term Disability) Policy
- The waiting period of several months
- Maximum benefit period of a few years to retirement age (65, 67, 70)
- 90 days is the typical waiting period for a long-term disability that can stack onto a short-term policy
What Are The 4 Reasons To Apply For Disability Insurance?
Unexpected disabilities are more common than many people think.
The chances of becoming disabled are higher than most people realize. According to the Social Security Administration, over a quarter of today’s 20-year-olds will experience a disabling injury or illness before they reach normal retirement age. In fact, people are more likely to become disabled than die at any point during their working career.
What constitutes a disabling event is also commonly misunderstood. The vast majority of long-term disability claims are accounted from serious illnesses, such as cancer and heart disease, and musculoskeletal disorders, such as arthritis and back pain. Meanwhile, injuries stemming from accidents make up only a small percentage.
Disability insurance allows preparing for the unexpected by protecting future income. By putting a policy in place while still young and healthy, lower rates are able to lock in.
Financial obligations don’t disappear.
Financial obligations come in all shapes and sizes. But what happens to those financial obligations when a person can no longer fulfill them?
Homeownership is a perfect example. In most cases, buying a home will require taking out a mortgage loan for financing. This is a major financial obligation that requires a steady stream of income to fulfill.
Even the best health insurance coverage will not make up for the income lost while unable to work. Workers’ compensation only applies to accidents on the job. Individual long-term disability insurance can keep an individual afloat financially for the length of the benefit period on the policy (anywhere from two years up until retirement).
Your family most likely relies on you.
When it comes time to start your own family, you need to make several serious financial decisions. This includes preparing for what could go wrong.
For many, life insurance is the first thing that comes to mind to be able to protect and provide for their loved ones if they pass away. It makes perfect sense to consider that 70% of working Americans would experience financial hardship within a month of losing their paycheck. The loss of any income can be devastating, especially if it’s the primary breadwinner’s.
The reality is that disability insurance belongs in a financial plan just as much as life insurance does. It’s important to note that one is not a substitute for the other. Together, life and disability insurance can provide you and your family with greater financial peace of mind.
Disability coverage through work is often insufficient.
One way to get disability insurance coverage is through an employer-sponsored group plan. While group coverage is inexpensive and nice to have, it’s rarely enough by itself.
Group disability insurance plans typically place a cap on benefits. This can be problematic for high-income earners because benefits are cut off at a certain dollar amount.
Group disability coverage uses the base salary, which does not account for commissions or bonuses earned, and benefits are taxed. If the employees leave the company, they lose coverage, and even if they stay, the employer can decide to cancel the plan.
Meanwhile, individual disability insurance allows a person to select a higher benefit amount based on their total net income. Premiums are paid with after-tax dollars, so any benefits received will not be taxed.
Who Doesn’t Need An Individual Disability Coverage?
For many working professionals, an individual disability insurance policy can be a viable financial safety net. However, just because one earns an income doesn’t mean one needs to have individual coverage.
It can be obtained without individual disability insurance if the group plan offered by the employer covers at least 60% of the monthly income. Group coverage has its limitations, but it may be sufficient in some cases. Those who have enough emergency and retirement savings to weather a prolonged disability can likely do without an individual plan, as well.
It just depends on how long a person can last without being able to earn a paycheck. If someone makes an income but does not rely on it to meet her financial needs, they can skip buying a policy. In that case, the household’s primary breadwinner should implement a plan.
The Bottom Line
There could be many reasons to include disability insurance in the financial plan, but none are more important than protecting your income. Risk Managers, LLC offer Disability Insurance, which is income protection to individuals who become disabled for a long period, and as a result, can no longer work during that period. Ultimately, they will help you think ahead and plan for the future.
