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Understanding Disability Insurance
What is disability insurance?
The term disability insurance refers to a policy that provides income also known as a monthly benefit to individuals who can no longer work because of a disability. With the average long-term disability claim just under 3 years, a disability policy will help protect you from draining your savings or retirement assets. It is important to know that disability insurance products are offered by life insurance companies.
Is getting disability insurance worth it?
If you believe the ability for you to continue earning your income is important to maintain your standard of living then YES, disability income insurance is worth it.
Whether you‘re a 20-year-old or a 40-year-old having some level of income protection is worth it. Disability insurance costs can vary depending on the type of disability insurance coverage, so it‘s important to understand the disability benefits and the disability insurance plan. Short-term disability insurance is usually only offered in a group setting and will only cover you for an average of 6 months or 180 days.
In most cases, if you are self-employed we would recommend a disability insurance policy. Most self-employed individuals don’t have access to group coverage through an employer, so the only access to coverage would be an individual disability insurance policy.
What does disability insurance cover?
Disability insurance is designed to replace a percentage of your income if you can no longer work because of an accident, injury, illness, and/or disability. This will help you cover any household living expenses, pay bills and provide for your family.
Disability insurance companies will pay you a monthly benefit amount tax-free for as long as you are disabled or for the entire benefit period.
Is Long-term disability worth it?
After fulfilling the waiting period, Long-term disability insurance will often cover you to retirement age or a specific period of time that you selected. You shouldn’t expect to live comfortably with a disability check from the social security administration which is why it’s recommended to have a long-term disability.
The council for disability awareness will show you statistics and real-life stories to help reveal the importance of having disability insurance.
What should I look for in disability insurance?
There are many providers that offer disability income insurance, so it’s important to choose the company that specializes in your own occupation. Before you complete a medical exam and go through the underwriting process you should have an understanding of the coverage amount and the amount of time you will collect a monthly benefit.
Next, you will need to understand the different terms and riders offered in the disability insurance plan. You will want to make sure you have own-occupation coverage which is a specific rider that will cover your specific occupation if you‘re unable to perform the duties that you‘ve been trained to perform.
An elimination period is the waiting period that you have to go through before receiving any benefits. An elimination period ranges from 60 days to 365 days, but the most common is 90 days.
After you complete the underwriting process the disability insurance company might impose an exclusion based on your health. An exclusion is typical because of a pre-existing condition which the insurance company does not have to pay a monthly benefit for.
How much is disability insurance?
A Disability Insurance benefit is about 60% of your gross pay. With that benefit amount, you should expect to pay between 1%-3% of your annual salary in premiums. The actual amount will vary based on how much coverage you buy, age, gender, and occupation class.
In some cases, companies like Guardian might charge more or less based on the state you‘re living in. For example, if you live in New York or New Jersey your monthly premium will be lower than if you lived in Florida. Please note, that most companies will not let you use a credit card to pay your premium but will allow a brokerage account.
Guaranteed renewable disability policies can be cheaper to start, but after each anniversary date, you should expect the premium to increase and become more expensive over time. Don’t forget to ask us about our AMA Discount!
How much disability insurance do I need?
The amount of disability insurance needed should be enough to cover your monthly expenses and any outstanding debts. The maximum disability amount issued by an insurance company is roughly 60% of your income. The average cost of disability insurance is typically between 1 percent and 3 percent of your annual income.