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Time to Debunk These Persistent Disability Insurance Myths

When you think of disability insurance, do you think about insurance that covers disability due to a relatively severe accident? Many people do. What about the chance of a disability happening to you? You are a careful person and you have a desk job. No need for disability insurance, right? Well, the preceding scenarios make up two of the larger disability insurance myths. Read on to see how many disability insurance myths you believe.

Myth: I won’t ever need it

You, disabled? You are as strong and healthy as an ox. So the chances of a disability must be pretty slim, right?

Actually they are likely higher than you might guess.

Just over one in four of today’s 20 year-olds encounter a disabled before they retire.

Are you prepared if it happens to you? Probably not. Most Americans don’t have disability insurance, nor enough emergency savings to last the duration of the average long-term disability claim, which is 34.6 months. Ouch. Don’t fall prey to this disability insurance myth.

Myth: Catastrophic, one-time events, such as serious accidents or injuries create most disabilities

Illnesses rather than accidents cause approximately 90 percent of disabilities.

Common chronic conditions are the top causes of disability, including:

  • Back problems
  • Joint pain
  • Muscle pain
  • Muscle and bone disorders

Myth: Disability insurance is the same as worker’s compensation

When you are injured at work, you receive workers’ compensation benefits. Most state laws require employers to carry workers’ compensation to cover injured employees.

One does not have to be injured on the job or worksite to receive Individual disability coverage benefits.

Myth: Disability is not taxed

There are several types of disability insurance that are non-taxable, but there is no inclusive exemption for disability.

Disability benefits paid by an insurance company for lost wages, loss of limb, loss of sight (etc.) may or may not be taxable, depending on the circumstances, such as if:

  • The premiums were paid by your employer and were not included in your taxable income, the disability benefit income is taxable.
  • You paid the premiums out of your own pocket or with payroll deductions from after-tax income, the disability benefit is generally not taxable.
  • You and your employer jointly paid premiums and you paid your share with after-tax income, only the amount covered by your employer’s payments is taxable.

Myth: Social security covers my disability

Social Security provides small benefits to disabled workers ($1,166 in June of 2016) and getting approval for coverage is very difficult.

Only 32 percent of workers who applied for social security disability benefits in 2015 were approved; the lowest ratio since 1982.

Also, you can’t collect Social Security disability benefits until the end of your fifth full month of disability–and only if you are expected to be out of work for 12 months or longer.

Reality: Disability insurance is income protection

Disability insurance is not a luxury. In today’s day and age, it is a requirement for most working adults—a majority of whom must find a way to protect your greatest financial asset—your ability to earn a paycheck.