Disability Insurance Overview.
- Income Protection: Disability insurance provides a safety net by replacing a portion of your income if you are unable to work due to illness, injury, or disability.
- Short-Term vs. Long-Term: Short-term disability insurance covers temporary disabilities, while long-term disability insurance provides benefits for extended periods, sometimes until retirement age.
- Coverage Options: Policies can vary in coverage, with some covering up to 60-70% of your pre-disability income, while others may offer additional benefits, like cost-of-living adjustments.
- Elimination Period: This is the waiting period before benefits kick in, typically ranging from a few weeks to several months. Shorter waiting periods often result in higher premiums.
- Definition of Disability: Policies may differ in how they define “disability”—some may cover total disability, while others may only cover partial disability or inability to perform certain tasks.
- Group vs. Individual Policies: Employer-sponsored group disability insurance may be more affordable but often offers limited coverage, while individual policies can be customized to meet specific needs.
- Tax Implications: Benefits from disability insurance can be taxable or tax-free, depending on how the premiums were paid (e.g., if premiums were paid with pre-tax or post-tax income).
- Riders and Additional Coverage: Riders like “own occupation” clauses (which provide benefits if you’re unable to perform your specific job) can enhance a policy.
- Pre-Existing Conditions: Some policies may exclude coverage for pre-existing conditions, so it’s important to review the terms before purchasing.
- Peace of Mind: Having disability insurance ensures that you won’t be left financially vulnerable if an accident or illness prevents you from working, providing peace of mind for you and your family.
What are your chances of becoming disabled?
According to the Social Security Administration young workers have a 23% chance of becoming unable to work due to illness or injury during their careers. You’re more likely to need disability insurance than other common types of coverage.
These numbers clearly illustrate the value of owning disability insurance. It becomes even more of a no-brainer when you see just how much financial protection you’re actually getting for how little of a cost.
Meet Jenn. She’s 39 years old and earns $100,000 per year as a consultant in Houston, Texas. She has a $400,000 house she protects with homeowner’s insurance and a $35,000 car she protects with auto insurance. But Jenn doesn’t have disability insurance to protect her income. Here’s why she should.
Jenn plans to retire at 65. Although she hopes to increase her income, let’s say Jenn’s income remains steady at $100,000 per year until retirement.
$100K x 25 years = $2.5M
Jenn is on track to earn $2.5 million in income over the remainder of her working years. She also faces a 1-in-4 chance of losing the ability to earn $2.5 million in future income if she becomes disabled. In reality, Jenn has $2.5 million of uninsured financial risk.
Jenn protects her income and her family from the risk of losing the money she makes with a disability insurance policy. The policy cost her $98/month and will pay her $5,000 per month if she is unable to work due to an illness or injury.
