In a survey by the American Payroll Association from 2018, over 70% of employees said that they would experience financial difficulties if their paycheck was delayed by even a week. But what if you could not work for several months or even years?
Disability income insurance is a type of insurance that provides a safety net if you are ill or injured and unable to work. You can think of it as an income protection insurance – if you have a medical condition that prevents you from taking a paycheck, the disability insurance reimburses part of your monthly income to cover important expenses while you heal. The amount of income compensation varies depending on the insurance, but is usually between 40-70% of your salary.
What does disability insurance cover?
Exactly what conditions are covered or excluded varies depending on the carrier, type of insurance, and options you choose, but disability insurance usually covers illnesses and injuries that prevent you from working normally. (If you are curious, yes, infectious diseases such as COVID-1
In conversations we have had, many people seem to associate disability insurance with accidental injuries. Although injury protection is indeed a major benefit of disability insurance, accidents are actually a relatively small part of the total damages. According to the Council for Disability Awareness, pregnancy, diseases such as cancer and musculoskeletal conditions such as arthritis are actually much more common causes of disability.
Who needs disability insurance?
So why is disability insurance important? Many people seem to be very aware of the need for life insurance – especially after major life events such as having a child or buying a new home. But for some reason, comparatively few seek disability insurance if it is not provided through their employers. It could be a mistake.
You are much more likely to become disabled than to die prematurely. According to the Social Security Administration, more than 25% of today's 20-year-olds will be disabled at some point before they reach their normal retirement age, while about 6% will die before retiring without becoming disabled.
Although there is an obvious silver lining there – we also prefer not to die – it also means that you may want to encounter disabilities in your priority list. Most people are likely to benefit from coverage, but there are some situations that make disability insurance particularly important. These include if …
- You are a single parent
- Your income is needed to cover important monthly expenses, such as food, housing, car loans and student or credit card debt
- You have a physically demanding job
- You do not have enough emergency savings to cover your bills for several months.
What qualifies as a disability?
It depends on the disability insurance and the options you choose, so there is no comprehensive answer for what is disability. With Haven Disability as an example, a total disability occurs when …
- You have a condition caused by illness or injury that prevents you from performing the important tasks, functions and operations that are usually required for your profession that cannot reasonably be omitted. or modified
- You are under the care of a physician
- Disability begins while the policy is in force
Your profession is defined as “your usual profession or business at the beginning of a disability for which you receive or may receive compensation.
Types of disability insurance
Disabled income insurances are divided into two main types: short and long term. Although they both cover illnesses and injuries that prevent you from working, they differ in two important ways: the benefit period and the abolition period .
The benefit period of an invalidity policy is the maximum time for which you receive benefits for each approved disability claim if you are unable to work due to an illness or injury.
The abolition period determines how quickly you are entitled to benefits after you have been disabled. To give an example, an abolition period of 14 days means that you are entitled to invalidity benefits if an illness or injury causes you to miss two weeks of work. If your insurance has a cancellation period of 60 days, you must miss work for two months before you become eligible.
Short-Term Disability Insurance
Just as it sounds, short-term insurance is designed to cover short-term needs if you have an injury or illness that prevents you from doing your job. The length of the benefit period varies depending on the temporary disability policy, but is usually between three months and one year and replaces 60-70% of your basic salary.
Since short-term disability is intended to provide more immediate protection, it also comes with relatively short elimination periods. Some insurances, such as Haven Disability, can start paying after just 14 days of disability, but elimination times of 30 days are also quite common.
Long-Term Disability Insurance
While short-term insurance can start paying disability benefits for as little as two weeks, long-term disability benefits usually do not start until at least 90 days have passed, or sometimes longer. This is because a long-term disability insurance is designed to cover illnesses and injuries that keep you out of work for years or even decades. Most long-term disability policies reimburse 40-60% of your basic salary.
Since the benefit period can be extended for several years or more, long-term insurance is more expensive than short-term. This may help explain why fewer employers offer long-term disabilities than short-term disabilities, according to the Bureau of Labor Statistics.
Which is more important?
Ideally, you do not have to choose. As long-term disability picks up speed where short-term ends end, the two types of disability insurance complement each other well. If it's not an option to have both, it's really a matter of your personal situation and how soon you need income protection if you can not work.
Social Security Disability Insurance vs. Long Term Insurance
Social Security Disability Insurance (SSDI) is a federal disability insurance program that provides similar benefits to long term insurance. It's a valuable asset for many Americans who are unable to work, but it's not a perfect replacement for private disability insurance.
To receive SSDI benefits, you must have worked long enough and recently enough to have enough work credits for Social Security. to qualify. If you are unsure, you can learn more about the requirements here. Your medical condition must also be severe enough to last for at least a year or lead to death.
If you meet the first two criteria, the National Insurance Administration evaluates your ability to do either the work you did before or some other type of work, based on your age, education, experience and skills. It raises the severity of the disability required to receive benefits.
Finally, if you qualify for SSDI, it is the earliest you can receive benefits after five months of disability. It is usually easier to qualify for long-term insurance benefits than SSDI, and it usually starts paying earlier than social security. For those who qualify for SSDI, the average monthly invalidity benefit was $ 1,280 as of April 2021.
What about employee benefits?
Workers' Comp is a type of insurance that protects employees suffering from an occupational disease or injury. Like disability insurance, it reimburses part of your paycheck and also covers medical expenses and care or funeral expenses.
Worker's compensation is a great advantage, especially if you work in a dangerous profession but do not replace disability insurance. Most disabilities are caused by diseases and injuries that are not work-related. In fact, only 1% of workers missed time due to an occupational disease or injury in 2016, according to the Disability Awareness Council. good benefits. Because they are group plans, they are almost always cheaper than buying private disability insurance, and acceptance is usually guaranteed. Some employers even pay for the coverage in full. (As we said, that's a nice benefit.)
Unfortunately, most Americans do not have an employer-insured disability. A report by the Bureau of Labor Statistics shows that as of 2014, only 39% of private sector employees participated in a short-term disability insurance at the workplace and 33% had a long-term insurance. It leaves millions of Americans without disability protection.
An important thing to note is that if your employer pays for your disability insurance, or if you pay for it with money before tax, the disability benefits you will receive will be subject to tax. This means that you may not have as much coverage as you think. On the other hand, if you pay for an individual disability insurance with money after tax, your disability benefits will not be taxed further.
Meet Haven Disability
Haven Disability can function much like a typical group of short-term disability insurance, with monthly benefits up to 60% of your income. Because the disability policy is purchased privately, the benefits are not subject to tax deductions, and the coverage is portable if you change companies.
But Haven Disability is also highly configurable, with monthly benefits ranging from $ 500 to $ 5,000. If you are trying to minimize your monthly disability insurance premiums and want to cover only a major expense, such as your rent, mortgage or car payment, Haven Disability lets you do that. You can also choose between benefit periods of 3, 6 or 12 months and elimination periods of 14, 30 or 60 days. This way, you can customize the coverage to suit your needs and budget.
Haven Disability can be used online in minutes without phone calls or liquids. Read more at invalid.havenlife.com, or if you would rather jump straight to the numbers, you can get an estimate of 30 seconds at invalid.havenlife.com/quote.(19659050]