One of the most important types of insurance, but one of the least often thought of types of insurance is disability insurance. A disability insurance policy protects a person from the risk of income loss due to a covered accident or a sickness.
From a financial standpoint a disability of a family member can often have more impact of than the death of a family member. A disabled person will still need a certain amount of money so that they can be fed, clothed and transported.
We are more likely to be disabled during our working years, than we are to die. However, many people who have life insurance to pay benefits to their family never give a thought to getting coverage for disability.
There are a lot of options available with many disability policies, so there can be quite a bit of complexity involved in buying a policy. However the basic steps are these:
You will need to decide on the amount you want to receive in monthly benefits. This can be as simple as basing the amount on your take home pay. You are not likely to qualify for an amount higher than your take home pay. Most carriers limit what they will pay for disability claims to seventy percent of what the insured's gross income was when they applied for their policy.
For many people the take home pay is the right amount for their disability benefits. If you buy the policy as an individual as opposed to a member of a group, you will probably pay your premiums with post tax dollars. This means that you will probably receive any benefits on a tax-free basis.
You will also need to decide how long you want to receive benefits. Typical time periods can be two years, five years or until age 65.
When an injury or sickness keeps you from working for a long enough period of time, you may become eligible for monthly benefits from the insurance company. This period of time is called the elimination period. It works similarly to an auto or health insurance policy's deductible. The longer your elimination period, the lower your premiums will be.
You will generally find that disability insurance policies offer a rider that adjust your benefit based increases in the cost of living. Many people will find that their injuries or their condition keeps them from working for years and years.
Having a benefit that provided enough money to keep you in your home and put food on the table ten years ago many not be enough today. You run the risk of being more and more limited in the good and services that you can buy as time goes on if you do not add the cost of living adjustment rider. Failing to include this protection means that your income can stay the same as your expenses rise.
When we think about insurance, we typically think about coverage for our property or liability insurance for our vehicles. Disability insurance is at least as important as protecting our families and our business interests with other types of coverage.
Disability insurance provides loss of income protection. This limits your exposures and protects your dependent children from the financial impact of a disability.