"1 in 4 twenty year olds will become disabled before reaching age 67."

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What you need to know about Disability Insurance

If you are considering buying a disability insurance policy, you may not know where to start. There are many policy options available, and the details can be overwhelming. The best way to start is to get some background on this type of insurance in general. Then, you can start thinking about the specific policy, coverage, and features that would work best for you and your family.

The Basics of Disability Insurance

Disability insurance policies provide benefits to those who are unable to work because of a health condition. This condition could be the result of an accident or an illness.  Unlike workers’ compensation, the injury does not need to be directly connected to work. Instead, the injury or illness could have occurred virtually anywhere. The focus is on your ability to work, not how or where you developed the disability.  You can choose the amount of disability coverage for your policy.  Some carriers will allow benefits up to 75 percent of your average monthly income. They can last for a significant amount of time as well. Benefits are paid up to a certain age, often age sixty-seven, or for a pre-selected term of three or five years.

Relying on Government Assistance Alone is Not a Good Idea

You may think that you don’t need a disability insurance policy because you will be able to file for disability benefits with the government through programs like Social Security or Workers’ Compensation. Relying on these programs, however, is risky.  It may be that you would not be considered disabled by programs like Social Security or Worker’s Comp, but you would be considered disabled by your private disability insurance. Social Security also has a long waiting list. Applicants are routinely denied in their first application, and the appeals process can take a year or more!

Age Matters

As you age, your chances of having a health-related problem increase. From a disability insurance perspective, this also means that your premiums will likely go up.  You can avoid being denied disability coverage because of health problems if you apply while you are young and healthy. This will keep your premiums down in the long run as well.  If you are over the age of 67, you likely don’t need disability insurance. After that age, most individuals are considered retired for disability insurance purposes. You may also be entitled to Social Security retirement benefits by that time as well.

Consider Your Financial Needs

People often wonder if they need a disability policy at all. Some people may not need it because they have savings or other ways to pay their regular bills if they suddenly cannot work any longer. Most people, however, do not have that luxury. If you are living from paycheck to paycheck, disability insurance should be a serious consideration for you.  You should first determine your average monthly income. To find your average income, simply find your earnings for the past year and divide that number by 12. This number will likely be the income amount that your disability insurance provider will use when calculating your benefits.  Then, compare this average to your average monthly bills. You may also want to add between five and ten percent of this amount for additional medical expenses. Becoming disabled often causes an increase in medical expenses.  How much could you subtract from your income and still pay your basic bills? Do you have other sources of income that could help you during this time? Thinking about these difficult questions now can save you significant stress in the future. It will also tell you not only what you may need in benefits, but what kind of disability insurance premiums you can afford.

Understanding Disability Insurance Premiums

Your premiums will vary depending on a number of factors, including
Age
Job
Current health
Habits (tobacco use and alcohol use)
Medical information

Your premiums will also depend on how much coverage you want and your current income as well

Coverage Limitations

Disability benefits are not available for all types of disabilities. Some policies have restrictions on the types of jobs that are covered. Disability policies also typically exclude any preexisting conditions, making it difficult to obtain a policy that covers an injury or illness that you’ve already been diagnosed with. Reading through the policy details and “fine print’ is important to make sure you’re getting the coverage that you think you are, and the coverage you and your family need.

Optional Add-On's

Many insurance carriers offer supplementary or “add-on” coverage options as well. For example, you might want to add coverage on for certain types of injuries or illnesses if those are not already covered by your policy. Some supplementary policies allow you to increase the percentage of your monthly income that your disability policy will pay out. You may also be able to add some benefits that cover hospital stays. Some policies offer a cost-of-living adjustment so that your benefits go up as the cost-of-living increases as well.

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