Disability Insurance

Protect your greatest asset, your ability to earn a living.
Learn how to protect your paycheck if you become
unable to work in the event of sudden injury or illness.

Your income is the foundation of the life you’ve created.

You insure your home and its contents against theft, fire, and flood. You insure your car(s) from the financial impact of auto-related damages or injuries. Perhaps you insure other valuables, such as jewelry, antiques, and collectibles. Why not insure what makes all those things possible with a personal disability insurance policy?

Your income is the foundation of the life you’ve created. Your income allows you to establish your living standards and provides for your goals. However, what happens if you become too sick or injured to work and earn a living? Unfortunately, disability is much more common than you might think.

The Reality is – We’re Vulnerable

Two of the biggest myths about disability are that it doesn’t happen to younger people and that it’s primarily the result of work-related accidents. Here’s the reality:

  • Just over 1 in 4 of today’s 20-year-olds will become disabled before they retire.
  • 90% of all disabilities are caused by illness, while only 10% are the result of accidents.
  • Close to 95% of disabling accidents and illnesses are not work-related.

Alternative Sources of Income

Disabilities can cost millions in lost income and added expenses. There are alternatives for supplementing income. However, most are short-term, unreliable, and inflexible. Consider these points:

Group Long-Term Disability Insurance

Group LTD is a good foundation; however, the need to supplement Group LTD is an important consideration; here’s why:

  • Group Long-Term Disability Insurance does not cover bonus income or retirement contributions.
  • Benefits are generally taxed since employer-paid coverage significantly minimizes actual benefits received.
  • Group coverage is not individually owned (it can’t be customized, you can’t take it with you if you leave, and it can be canceled at any time by the employer).
  • Benefit limitations placed on groups can leave higher-paid individuals under-protected.

Individual disability income protection is one of the most reliable and flexible sources of income replacement.

  • Disability Insurance helps keep income strong so your savings, lifestyle, and future plans can remain on track.
  • Individual Disability Insurance coverage is based on your income, not that of a collective group or Social Security level.
  • Individual Disability Insurance policies can cover base salary, bonuses, and retirement contributions.
  • Also, if you pay the premiums yourself, benefits are not subject to taxes.
  • Most Individual Disability Insurance policies come with fixed premiums and non-cancellable coverage.
  • Individually owned Disability Insurance is portable; you can take your coverage if you change jobs or careers.

Questions to Ask When Considering Disability Income Coverage

When will the insurance company regard me as totally disabled?

The core of any disability income policy, the definition of Total Disability, outlines what constitutes disability. Different companies use different definitions. Some policies pay benefits if you cannot perform the duties of your own occupation, even if you work in another occupation. Others pay only if you cannot perform the duties of your own occupation and you’re not working in any other occupation. Still, others pay only if you cannot work in any occupation for which you are reasonably qualified.

How much disability insurance coverage am I eligible for?

Generally, it is up to about 60% of net salary or business income. Factors include your current salary and any other coverage you have (either applied for or in force).

When do disability insurance benefits start?

A policy’s Elimination Period is the time that must elapse following disability onset before benefits become payable. A typical elimination period is 90 days; however, choices are available. You elect your policy’s Elimination Period when you purchase your policy.

How long will disability insurance benefits last?

Typically, disability insurance benefits are payable monthly for a maximum of two years, five years, ten years, or to age 65 or 67. Few companies offer benefits payable beyond these periods. Your policy’s Benefit Period is determined when you purchase your policy. If you are younger and just beginning to save for retirement, you may want to consider an extended benefit option; if you are older and have substantial retirement savings, you may not need a benefit beyond age 65 or 67.

Can my disability insurance policy be changed or canceled, or my premiums be raised?

If you pay for something, then you should own it. A good policy cannot be changed or canceled, even if your health or financial situation changes. It should also guarantee that your premiums will remain fixed until age 65 or 67, as long as you pay them on time.

What if I want to change my disability insurance coverage?

Look for policies that allow you to increase coverage to keep pace with the cost of living or increases in your income. Some offer optional riders that allow automatic or optional increases every year. Insurers sometimes add restrictions to benefit increases if applicants have reached a certain age – say 55 or 60. So it’s best to ask early.

What if I change jobs or careers?

One advantage of owning your own DI coverage is that it’s portable. You pay for it, so you own it, and you can take it with you if you leave your employer – or if you go into a completely new field or line of work.

What if I’m only partially disabled?

A good policy will pay benefits if you do not qualify for total disability benefits. However, your income has been reduced because of sickness or injury, or you can only work part-time. Look for a policy that does this even if you don’t become disabled first. This benefit provision may be referred to as a partial or residual disability benefit and may be included in the base contract or attached as an optional rider.

To trigger such a benefit provision, the disability need not be “total” but may require a loss of time, duties, income specified as a percentage of your pre-disability earnings, or any combination thereof. The richest policies have the fewest requirements to receive such partial disability benefits, pay the highest percentage of your total disability benefit, and do so for the most prolonged period.

Is there protection for my business in the event I become disabled?

If you own or share ownership of a business or professional practice, you might also consider protecting that investment long-term.

  • Overhead Expense insurance reimburses the ongoing expenses of operating your business or practice if you are too sick or injured to work.
  • Business Reducing Term insurance protects financial obligations that require periodic payments expiring at a given time, such as business loans, professional practice loans, and salary contracts or contract performance guarantees.
  • Disability Buy-Out insurance reimburses the owners or partners of a business or professional practice if they need to buy out a disabled owner’s financial interest in the company.

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