Imagine what life would be like, if you suddenly had a disabling accident or illness, and were unable to work. Many people experience the loss of their home, and have to declare bankruptcy. To prevent this financial nightmare, it is prudent to have disability insurance.
While no policy will duplicate your total income, an employer-sponsored group plan will generally cover 60% of your lost wages, and many individual or supplemental polices will often replace 70% to 80%. However, some only cover 40% to 65% of your gross income. You can expect to receive these benefits for a specified amount of time, and they usually will cease as you reach retirement age. It is important to research your plan well, as many have stringent guidelines about the definition of disability.
Group plans often have a monthly or annual benefit cap, and will only cover your basic salary–not bonuses or other incentives. Group policies generally have a limit of 2 years that they will cover your wages, and you will be expected to train for a different type of job (if possible), if your disability renders you unable to return to your former position. A great advantage to this plan is that you do not have to meet qualifications, unless you have a pre-existing condition, which may require a waiting period.
Short term disability insurance (commonly known as sick leave) is offered by most companies and usually the longer you work for an employer, the greater your benefits. These plans generally cover your income for about 3 months.
Employers are not required by law to provide long-term disability plans, but approximately one half of all medium to large businesses do offer disability coverage of some kind.
Individual long-term policies are available, and one benefit of an individual plan is that if you change employment, the policy goes with you. However, the negative side is that premiums are based on your health, gender, age, and even occupation. This type of coverage is also quite expensive. Make sure that the policy can be renewed, and that it can’t be canceled.
Another option is group disability insurance, offered by a professional organization. The coverage is less expensive than an individual plan, and does not require a great deal of underwriting.
Because life includes unforeseen situations, it makes sense to plan ahead for your family’s financial security.