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Disability Insurance

A surprisingly large number of people suffer a short or long term disability during their lifetime. If this happened to you and you were unable to work for a period of several months or years, would you be able to meet your mortgage, bills and other financial obligations? For most people a short or long term disability would cause enormous financial hardship.

Most disability insurance policies are offered under group or employer paid plans, but some companies also offer individual disability policies. There are two major forms of disability insurance: short term and long term. Short term disability (STD) insurance pays a percentage of your income, up to a maximum monthly amount, for a period of usually between three and six months if you are disabled and unable to work. If the disability is due to injury the benefit usually starts immediately, but if it is due to illness there is often a short wait period to determine if the illness is disabling. Some employers may require you to use up your sick days first before submitting a claim under your disability policy. If you are still disabled when your STD benefits expire, your long term disability (LTD) policy kicks in to pay a percentage of your income for a longer period of time, ranging from two or five years to retirement age.

Insurance companies will generally work with your employer to find ways for you to return to work as quickly as possible. They may offer financial incentives if you are “partially disabled” and able to return to work part-time or to a lower paying job. In some cases disability policies may pay for child care expenses if your spouse needs to return to work as a result of your disability.

If your employer paid your premiums with pre-tax dollars, then your disability insurance benefits will be taxed as income. However if you paid your premiums yourself with after-tax dollars then your insurance benefits will be tax-free.

Disability insurance policies vary. Some policies pay disability benefits if you cannot work in your usual job, while others only pay benefits if you are unable to work in any job. Some only pay benefits if you are totally disabled, while others also pay for partial disability. Some policies cover you if are able to work but suffer a significant loss, such as loss of sight, hearing, speech, limbs or paralysis. The longer the coverage and the higher the percentage of your income offered, the higher the premiums will be. For an additional premium, some policies allow you to purchase cost-of-living adjustment (COLA) to allow your benefits to keep pace with inflation. Most policies include a “waiver of premium” so that you do not need to continue to pay your premiums if you are disabled for usually 90 days or more.

Disability insurance can provide peace of mind and financial protection in the event of a serious injury or illness that prevents you from working for a period of time.