Disability Income Protection

Scott Russell |

The biggest risk to your financial future is the possibility of losing your earnings due an injury or an extended illness that prevents you from working. In fact, nearly one in three people between the ages of 35 and 65will suffer some sort of disability which will keep them from working for at least 90 days.  Yet this is the one risk that, for most people remains unprotected.

When a Disability Strikes

It happens when you least expect it. A fall from a ladder. A skiing accident. A serious illness. No one plans to become disabled. As a result, very few people have set up contingencies for covering themselves when their income stops.  Some people are under the mistaken impression that their employer health plan covers long term disabilities.  Some employer plans cover short term disabilities but few cover long term disabilities.

A recent study revealed that the majority of people in this country couldn’t cover three months of living needs with their savings.  The recommended amount of savings in an emergency fund is 12 months of living expenses, yet few people have started on that objective.

Perhaps the biggest misconception is that the government will step in to provide the coverage in the case of a disability. The only program that could possibly provide the benefits needed for a long term disability is Social Security; however, the qualifications are so steep that few people can actually receive them.

Disability Income Insurance

Insurance is designed to provide the capital needed after a loss when individuals cannot afford to provide it on their own.  Such is the case with the loss of a life, a home or a car due to an unforeseen event.  Most people cannot afford to replace their income from their own savings, which is where disability income insurance comes in.

Disability income policies are designed to replace a portion of your income. Some will cover as much as 70%, however, the income benefits are free from taxes.  It is not inexpensive coverage, and not everyone can qualify for it.

There are two types of coverage. One, an “own occupation” policy covers the income of individuals when they can’t perform the duties of their own occupation. For instance, if the duties require a special skill that can no longer be performed in that occupation, benefits will be paid, even though that person may be able to perform the duties of another occupation.

Another type, “loss of earning” coverage, will pay benefits in the event the disability leads to a loss of all or a part of earnings.

Disability Policy Basics

Definition of disability: This is how the insurer determines whether a disability is covered. Some definitions are so strict so as to preclude the payment of benefits. The more broad the definition, the more likely the benefits will be paid.

Waiting Period: There is usually a period of time that must elapse between the disability claim and the first payment.  The length of the waiting period can be selected by the insured and it should be based on the capacity to meet short term living needs before the benefits are needed. The longer the waiting period the lower the premium cost.

Benefit Period: This determines how long the benefits are to be paid. Benefit periods of two years to five years are typical. The longer the benefit period the higher the premium cost.

Disability insurance is a specialty coverage that can be purchased from a few insurance companies. To ensure that you are getting the best guidance and have access to high quality plans its best to work with someone who specializes in disability insurance.