Disability insurance: Everything you need to know
Disability insurance can provide a financial safety net in the event of an injury, disease, or condition that prevents you from working in either the short or long term. Here’s a breakdown of everything you need to know.
Video Transcript
- Insurance will pay about 50% to 70% of your salary once you've been off work for a legitimate medical disability, as confirmed by a doctor, for a specific amount of time. In most cases, the insurance company must approve your claim before benefits are paid.
Policies fall into two categories, short-term and long-term. Short-term disability insurance covers an inability to work due to an accident or illness generally no longer than a year in duration. Long-term disability benefits are generally provided for people with severe injuries or illnesses that will keep them unable to work for years or even for the rest of their lives.
Most long-term policies kick in after a three to six-month waiting period or when short-term policies terminate. Many employers provide short and long-term disability insurance to their employees. But benefits are taxed.
Generally, it's more affordable to participate in employer group rate disability insurance than individual disability insurance. Individual disability policies are purchased directly from an insurer and are tax-free.
The more generous the benefits and terms, the higher the monthly premium will likely be. The cost of coverage is determined by a person's overall health, occupation, age and sex, and hobbies. Oftentimes, a physical is required to determine the current state of health. Some insurers will refuse to write policies for individuals with illnesses or chronic conditions, while others will write a policy with a higher premium to exclude that specific condition from the individual's policy.
If you're seeking an individual disability insurance policy, here's what to consider. Short-term versus long-term, most people opt for long-term. See what coverage your employer offers. You'll want coverage that complements what you already have, if any.
The shorter the wait period to receive benefits, the higher the premium when it comes to collecting. Choose a non-cancelable policy over one that can be canceled. You'll pay more but ensure you have access to coverage unless you fail to pay the premium.
Under a return to work disability insurance provision, you'll still be able to collect medical benefits for your disability, even if you're back at work. Otherwise, your insurer could interpret that your return to work meant that you were fully recovered from your disability and didn't need further benefits. Stay financially fit, friends.
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