In the event of unexpected illness or injury that renders you unable to work, ensuring financial stability becomes paramount. It’s crucial to contemplate how you would manage your monthly expenses under such circumstances as part of your comprehensive financial strategy.

If your employer does not provide disability insurance coverage, it may be prudent to procure your own policy. Investing in individual disability insurance can offer invaluable protection and peace of mind. To assist you in making an informed decision, we meticulously evaluated various individual disability insurance policies to identify the top disability insurance companies in the market.

What Is Disability Insurance?

Disability insurance is an insurance policy that pays a portion of your lost wages if you become ill or injured and are unable to perform the main duties of your occupation.

Types of Disability Insurance

Short-term and long-term disability insurance are available.

If you get workplace disability insurance you likely get both short- and long-term. Check your benefits material or ask your HR department for details about the employer’s disability insurance.

If you’re buying individual disability on your own:

  • Short-term disability insurance is meant to last only a short time, such as one or three years.
  • Long-term disability can last many years. You’ll have a choice of benefit length that will be either a number of years (such as five or 10 years) or to a certain age, such as “to age 65.”

Where to Buy Disability Insurance

People often get disability insurance through work, but you can buy individual disability insurance on your own if workplace insurance isn’t available to you. Short-term disability insurance, especially, is mainly secured through a workplace.

The plans rated above are individual long-term disability insurance policies.

To purchase individual disability insurance from a private insurance company, you’ll need to contact an insurance agent who sells disability insurance from that particular company. Check the website of the insurance company you want, where you’ll often find a link to connect with an agent. Some disability insurance companies provide quotes online.

There’s also disability insurance available through the government in some cases. Social Security Disability Insurance (SSDI) is only available if you have worked and contributed to Social Security. If you’ve become disabled and are eligible for SSDI, you must fill out paperwork (which many people find extensive and complicated) and, if approved, wait for an extended period of time before payments are made.

How Does Disability Insurance Work?

After you enroll in an individual disability insurance plan, you pay monthly premiums. Then, if you become ill or injured and cannot work, the insurance policy covers a percentage of your wages. Disability insurance plans through work also typically cover pregnancy.

If you’re getting disability insurance through work, there’s usually a basic plan that the employer pays for and potentially the option to increase the benefit level at your own expense.

If you’re buying an individual disability insurance policy, you’ll generally have choices for the elimination period you want (meaning the waiting period until disability payments start) and the length of the benefit period. Elimination periods generally start at 30 days and go up to 365 days or, with some companies, even 730 days (two years). Choosing a longer elimination period is a way to reduce your monthly premium payments.

What Does Disability Insurance Cover?

Disability insurance typically covers a percentage of your wages or provides a flat monthly payment for a specified period of time after you begin to receive benefits.

If you’re buying disability insurance through work, ask your HR department what the definition of a “disability” is.

It’s important to examine the definition of “disability” when you buy an individual disability insurance policy. Individual disability insurance policies often have a choice of how “disability” will be defined, and you can upgrade to a more generous definition by buying a rider. The definition will affect your ability to get benefit payments. The typical definitions of a disability are “any occupation” and “own occupation.”

Any Occupation

You’ll receive monthly disability benefits if a sickness or injury prevents you from working in any occupation. This is the most restrictive definition of a disability.

For example, a shoulder injury might prevent you from doing the work of your own occupation but you could still do desk work for similar pay. In this case an “any occupation” disability insurance policy would not provide benefits.

Own Occupation

You are unable to perform the substantial and material duties of your own occupation. Some disability insurance policies will even pay a full monthly benefit even if you’re working in another occupation. This is the most generous definition for getting disability benefits.

Ask your disability insurance agent if an “own occupation” rider is available and if it allows you to get benefits even if you decide to work in a different job.

What Does Disability Insurance Not Cover?

A disability policy will contain a specific list of exclusions, which often include disability due to:

  • War
  • Pregnancy, except for complications from pregnancy
  • Committing a felony
  • Active participation in violence
  • Intentional, self-inflicted injury

Also, disabilities that start while you’re incarcerated may be excluded from coverage.

Are Disability Benefits Taxable?

The potential tax bill for disability benefits you receive depends on how the insurance was paid for:

  • If you pay for your disability insurance with after-tax dollars, the benefits are not taxable. For example, if you buy individual disability insurance on your own, your benefits won’t be taxed.
  • If the disability insurance is paid for by your employer, the benefits are taxable.
  • Money from SSDI may be taxable if you have enough additional income.

How Much Does Disability Insurance Cost?

An individual long-term disability insurance policy costs about 1% to 3% of your annual salary, according to Life Happens, an industry-funded group that focuses on insurance education. For example, if you make $200,000 a year, individual disability insurance will likely cost $166 to $500 a month.

Factors Affecting the Cost of Disability Insurance

Typical pricing factors for disability insurance include:

Your occupation. Risky occupations will lead to higher disability insurance costs.

Your health. When you apply for individual disability insurance you usually must answer questions about your health history. Poor health, chronic illnesses and smoking will lead to higher rates.

Your age and gender. Waiting to an older age to buy disability insurance will increase your monthly cost, especially for men.

The definition of disability. Policies that use an “own occupation” definition will be more expensive than those with an “any occupation” definition.

The coverage levels of the policy. The length of the benefit period, the monthly benefit amount and the elimination period you select will all affect the cost.

How to Choose the Best Disability Insurance for Your Needs

To determine how much best disability insurance you need, first calculate how much money you would need if you lost your ability to work. Add up your monthly expenses, including rent or a mortgage, utilities, food, insurance, debts and other financial obligations.

Then list the sources of income that you would use to help pay those expenses without your paycheck, such as a spouse’s income, savings and sick pay offered by your employer.

The difference is the amount you need in disability benefits.

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By Aban

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