The need for having a Disability Insurance may not be a pleasant conversation for you. You may think you have many valuable assets in life, but in reality, your monthly paycheck is your biggest asset. How long can you make your ends meet without your paycheck? That is why it is essential to protect yourself and your loved ones from the financial insecurity that a disability can bring your way.
What is Disability Insurance?
Disability insurance replaces a portion of your income if you can’t work because of any illness or disability. Disability insurance is either “short-term”, covering periods from few months to a few years, or “long-term”, providing multi-year or lifetime coverage. You can choose coverage length that best fits your needs. Some people buy both short-term and long-term disability coverage.
Types of Disability Insurance
Though each disability insurance is designed to provide the same service, that is a monthly payment for you when you are unable to work, there are few factors that determine the
- Cost of the insurance
- Period of its benefit
- Where you can apply for it.
Long-term disability insurance
It is one of the most prevalent disability coverage available. Long term insurance can be offered either through anemployer group coverage or can be purchased from a private insurance company. It lasts for five years, ten years, or even until retirement.
Long term disability insurance begins three to six months after you file for disability and can last for years. It’s intended to be a long term replacement for lost wages. The money can pay your monthly living expenses such as food, clothing, and house payments.
Long term disability insurance will benefit up to 60% of your monthly income. It is the most cost-effective disability insurance, and it can be purchased whether you work for an employer or yourself.
Short-term disability insurance
Short Term Disability Insurance is intended to provide income replacement when injuries (a bad back, for instance) or medical treatment (surgery, for example) keep you from working for a period of one to six months. Since the amount of income replaced, and the definition of “disability” differs from plan to plan, premiums for Short Term Disability Insurance vary substantially.
Short term disability insurance replaces up to 60% of your pre-tax income. The waiting period for short-term policies can be just a few weeks, so it can often cover your living expenses while you’re waiting for your long-term policy.
Social Security disability insurance
This insurance is designed by the federal government to benefit disabled US workers and families. To apply for Social security disability insurance, you need to qualify the following requirements:
- Your physical or mental condition must be serious enough to keep you away from taking part in any activity that provides monetary compensation, not just your current job.
- That physical or mental condition must last a minimum of twelve months or be expected to end in death.
- You must be under the age of 65.
- You must have earned twenty social security credits in the ten years before the onset of your disability. If you are over the age of 42, you must earn additional credit for each year above 42.
Getting approval for SSDI can be a lengthy process; only about 40% of people who apply for SSDI have their claims approved. So SSDI is not recommended as a primary method for disability coverage.
| Features | Short Term Disability Insurance | Long Term Disability Insurance | Social Security Disability Insurance |
|---|---|---|---|
| Coverage period | 3 months to 1 year | 5 years, 10 years or until retirement | Till the time you are disabled |
| Benefits begin | Within 7 days | 90 days or more | 6 to 10 months |
| Coverage amount | 40 to 60% of monthly income | 50 to 70% of monthly income | Less than 60% of your pre-tax income |
| Where to buy | Only available from your employer | Can be acquired through your employer or directly through a number of insurance carriers | It is provided by the US government |
Who needs Disability Insurance?
Everyone needs disability insurance regardless of the kind of job they do. If you are working and have a family who relies on your income, then you need disability insurance. When you’re young and healthy, it may not be possible to imagine where you can’t physically work. But, disability insurance costs less and is easier to acquire if you are young, healthy, and working.
Generally, disability insurance is offered by companies to all its employees. Disability insurance can pay your bills and help you to lead a comfortable life if you are unable to work.
When am I considered disabled?
The definition of “disability” varies by plan. A disability could be defined as sickness or impairment that leaves you unable to fulfill your career responsibilities. It can also be defined as being unable to meet the obligations of any career, taking into account your personal backgrounds, such as training, education, and experience.
Disability policies may include restrictions for specific disabilities or pre-existing conditions. Policy benefits vary, so contact your benefits administrator or insurance carrier to get the details of your plan.
Where can I buy disability insurance?
Long-term Disability insurance can be acquired through your employer or directly through a number of insurance carriers. If you can’t get long-term disability insurance through your employer, national insurance carriers will typically provide you with an individual policy.
Short Term Disability Insurance, on the other hand, is only available from your employer. Your employer’s human resource department can notify you whether or not short-term disability policies are provided by your company.
When will benefits start?
Once disability is confirmed after a plan-specific period of waiting time, benefit payments can begin. Short-term disability plans typically start quickly and provide coverage of up to 180 days. The most frequent waiting period for long term disability plans is 90 to 180 days.
How long will benefits be paid?
The maximum duration of disability benefits and insurance income varies by plan. As long as you maintain disability status, you can receive disability payment for the duration of your benefit period.
The shorter your benefit period, typically the lower your premiums are. The most common benefit periods are two years, five years, or to age 65.
How much disability insurance do I need?
A disability plan that covers a minimum of 60 percent of your after-tax income is typically suggested. To obtain an estimate of the benefit you might need, you should calculate the monthly income you would require to pay for your living expenses.
What additional benefits are available?
Individuals who have a disability that is anticipated to last at least one year may have access to Social Security disability benefits. The disability benefits from Social Security are not intended for temporary medical conditions and may have additional eligibility requirements.
What if I need to file a claim?
To file a disability claim your treatment provider will need to give you written proof of disability. Medical documents that contain specific information regarding your disability may also need to be provided. Additionally, your provider might want to examine your themselves.
If you and others depend on your income
Disability insurance is important if you or other people (like your family) rely on your income. Social Security disability benefits can help in the long run, but aren’t available unless your disability affects you for more than a year.
A good rule of thumb is to protect 60-80% of your after-tax income
You should look for a disability policy that will cover all of your essential costs of living, which is usually 60% or more of your after-tax (not your gross) income. Social Security payments alone may not be enough to support you.
Find out how much disability insurance you get at work
Both Short Term and Long Term Disability insurance coverage may be offered through the benefit package your employer provides. If disability insurance is provided, you should examine your plan to find what the disabled benefits are and when they can be used.
You need it even if you’re young and healthy
Twenty-five percent of 20 year-olds will experience disability before the age of 67. Disability insurance costs less and is easier to acquire if you are young, healthy and working.
Consult a financial professional or do your own online research to determine how much disability insurance you might need.
The financial strength of the insurance company you buy from matters
Disability insurance policies are long-term contracts between you and your insurance provider, so ensuring the financial health and stability of your insurer is crucial. Most insurers are rated by A.M. Best or other national services and you can find that information online.
Qualifications Required for Social Security Disability Insurance
- A physical or mental condition must be serious enough to keep you you from taking part in any activity that provides monetary compensation, not just your current job.
- That physical or mental condition must last a minimum of twelve months or be expected to end in death.
- You must be under the age of 65.
- You must have earned twenty social security credits in the ten years prior to your disability onset. If you are over the age of 42, you must earn an additional credit for each year above 42.
How do I apply for SSDI?
You can start your application for SSDI online, but you are likely going to have to either mail in or bring in documents to the closest Social Security office. Your disability must be diagnosed and documented by a doctor before you can get the social security insurance.
How long will it take to hear back?
SSDI applications can take between 90 to 120 days to process. If you are rejected and you want to appeal the decision, it can take a year or longer. During the application process you will need to provide your own income through either savings or private insurance.
How likely am I to receive benefits from SSDI?
Only about 40% of people who apply for SSDI have their claims approved, so SSDI is not recommended as a primary method for disability coverage.
If my application is accepted, how much money will I get every month?
SSDI benefits are calculated using past earnings to determine the payment amount you will receive. The SSDI benefit will be less than 60% of your pre-tax income, so shouldn’t rely on SSDI as your only source of disability insurance and disabled benefits.
Final words
Whether you have short-term insurance or long term insurance, these plans are designed to protect your finances when you are at financial risk. Having company short-term policies may not be enough, and qualifying for SSDI is quite challenging. In such a condition, you may want to consider long-term disability insurance.
You can deal with your disability better when you don’t have to worry about paying bills. Save your future and family, protect your paycheck with the right kind of disability insurance.