Our families depend on our capacity to earn in order to survive. In the event that anything happens to you on the job, there may be a period of time when you will not be able to work. When this occurs, your earning power gets diminished, causing those who depend on you to suffer. The problem when you have a disability is that you don’t only have to contend with the medical bills you need to pay for so you can get well. You also need to spend for the everyday expenses like food, mortgage and utility bills. Indeed, having a disability is a burden to your finances.
This is what makes disability insurance a necessity. Typically offered by employers, disability insurance can come in two kinds of policies. The first is short-term disability insurance which provides benefits for a maximum of two years and the second is long-term disability which provides benefits that can last for a lifetime. The typical term for short-term insurance is six months. It reduces your monthly earnings by about 60 percent of your salary. Long-term disability is the insurance that kicks in after the short-term disability insurance has already been fully spent.
These insurance policies also have different definitions of disability, making it important for you to determine how your plan views disability. Some will only say that you are disabled if you cannot do the tasks of any job. However, there are policies that will consider you disabled if you cannot anymore do the tasks required of you in your own job. The latter is ultimately the better plan because you’ll just have to prove that you cannot do the tasks required in your occupation.
There are various kinds of disability policies that can be bought in the market. To help you understand your options, these are the kinds of disability insurance policies available:
Group Long-Term and Short-Term Disability Plans
If your employer offers disability insurance, it will most likely be a group disability plan. In these arrangements, the employer usually shoulders the premiums or at least, a substantial part of the premiums. With short-term disability plans, the elimination period or the time period between the onset of your disability to the time when you can receive benefits can be anywhere from seven to fifteen days while the benefit period can range for 13 to 26 weeks. The long-term disability benefit has an elimination period of 30 days or more but have a two-year benefit period which can last until a person turns 65 years old.
In a guaranteed renewable disability policy, the insurer will guarantee that it will be renewed to the age when the benefit period is going to be given. Thus, if a policy is issued with a benefit period until a person turns 65 then it will be renewed to that age at least. Only the policyholder can end the policy and the insurer cannot make any changes in it after it has been issued. There are also restrictions on how much the premiums can increase with some insurance firms guaranteeing the rate in the policy’s first three years.
A non-cancelable disability insurance plan features a renewable option like that of a guaranteed-renewable policy. The difference is that while prices in a guaranteed renewable policy can be raised subject to certain conditions that of a non-cancelable policy remain the same to the age when the benefit is going to be given. However, these policies carry higher premiums.
The cost of disability insurance depends on a variety of factors. All of these will be taken into consideration to determine the actual premiums.
Your age is going to matter if you are trying to buy disability insurance on your own. The older you are, the more expensive it is going to be. There is also a limit on when you can get disability insurance, with the youngest age that you can avail of it at 18 years old and the oldest at 60 years old. Generally speaking, women also pay higher than men for coverage.
The cost of your premiums is also going be affected by any vices you may have. In case you smoke, for example, be prepared to pay up to 25 percent higher to get the same level of protection as someone who doesn’t. Those who have pre-existing conditions may also have to pay more.
The length of time before coverage kicks in from the onset of your disability—known as the elimination or waiting period—is another factor that can affect your insurance costs. The periods can range anywhere from 30 days to 90 days and even from 180 days to 360 days. If you want to bring down your premiums, you can opt for longer waiting periods before the payments start. However, you should make sure that you are going to have sufficient funds to shoulder your medical and living costs during the waiting period.
Another factor that will affect the cost of your disability insurance is the occupational class where you will belong to. Disability insurance providers typically use anywhere from four to six occupational classes to categorize applicants. Professionals like architects and lawyers are usually at the top of the class and pay the lowest premiums. However, those holding manual or blue-collar jobs are usually asked to pay more to get the coverage they want.
The benefits you get in a policy are also going to matter in the cost you are slated to pay for it. In self-contained policies offered by many insurers, the price depends on the benefits featured in the policy. However, there are other firms that give you the opportunity to set the features of your own policy, allowing you to customize your plan. Each benefit will have a corresponding cost and you will be paying these amounts. Needless to say, the better your benefits are going to be, the more expensive your premium becomes.
As far as benefit amounts go, how much you are slated to receive each month in the event of a disability is stated clearly in your policy. The higher the benefit amount is going to be, the higher your premium is. Take note, however, that most insurers cap the benefit amounts to 60 percent of the gross income of the individual. Also, most disability insurance plans pay regardless of your Social Security benefit. However, there are plans that do coordinate with your Social Security benefits. It’s best to read your policy’s fine print so you will know how your benefits are going to be treated.
No doubt about, disability insurance protects you from the eventuality that an accident in the workplace is going to render you incapable of working. If your employer offers a group plan then you are fortunate. However, if none exists, it would still be a worthwhile move on your part to buy disability insurance on your own. Here are some guidelines to keep in mind when you’re shopping:
1. Find out how much coverage you need. There are usually a number of restrictions for those availing of disability insurance under group plans. For example, the coverage is typically limited only to salaries and does not cover commissions. They are also subject to maximum payout limits, making it a not so ideal option if you are earning a lot.
To ensure that you are going to get sufficient coverage in the event of a disability, be sure to determine how much you will need for living expenses and other costs when you’re not going to be working. If you feel that the coverage given by your employer is not going to be enough, you might want to seek other insurers.
2. Get a policy that provides coverage when you can’t perform your specific job. Without this specific description of a disability, the insurer can argue that you are not disabled because you can still do other jobs with your education, work experience and training.
3. See to it that your policy provides coverage for both accidents and illness. This is very important because most people get disabled not because of an unfortunate event at work but because they got sick. Chronic diseases are going to hamper you from doing your duties too so be sure that you are covered for this eventuality as well.
4. Buy your disability insurance from reputable firms. You don’t want to put up with a company that has a track record of denying claims. Check with the regulator in your state to determine if an insurer already has a record of complaints and how these were resolved. You may also want to check out what their ratings are from independent credit rating agencies like Standard & Poor’s, Fitch and Moody’s.
5. Compare plans. There are many insurers offering different kinds of disability plans. Be sure to compare them before you make any final purchase.
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