Long Term Disability Insurance
Disability insurance replaces income you lose if you cannot work. This is an important type of coverage for working-age people to consider. In reality, disability insurance is as important as (and in some cases, even more important than) life insurance. That’s because at any given age the odds of becoming disabled are much higher than dying.
Whether you require short term or long term disability insurance will depend on the nature of your illness or injury.
Long term disability (LTD) insurance provides you with income for a long period of time, such as two years, five years, or until you retire if you become ill or get injured and are unable to work. Most people who have LTD insurance get it through their employers, although you can buy individual LTD insurance on your own.
LTD picks up where short-term disability (STD) leaves off. Once your STD benefits expire (generally after three to six months), the LTD policy pays you a percentage of your salary, usually 50, 60, or 66 2/3 percent. You then receive benefits until you reach age 65.
Individual Disability Insurance
If your employer does not offer group disability insurance, or if you feel your existing group policy does not provide adequate coverage, you may want to consider buying an STD or LTD individual policy. You can buy this through financial planners or the same agents who sell you life insurance or annuities, or, more rarely, though, auto and homeowners insurance agents. If you choose to buy it individually, the average premium could cost more than five to 10 times as much as a group policy, depending on your age, occupation, and annual income. You will also be required to take a medical exam to prove your insurability.
Individual disability pays you a flat amount each month, and most often you will not be paid more than 80 percent of your current salary. The insurance company will examine your occupation, income, and other sources of insurance when determining whether it will cover you and what your premium will be. When it determines your rate, the insurance company places you in a rating class with people who have similar characteristics such as age, occupation, medical condition, and income.
Definition of Occupation
Probably the most important provision in a disability contract is the definition of disability that will be used to determine an employee's eligibility for benefits.
- Own Occupation (Own Occ): Under this definition, an insured will be considered disabled only if he or she is unable to perform the duties of his or her occupation.
- Any Occupation (Any Occ): Under this definition, an insured will be considered disabled only if he/she is unable to work in any occupation for which he/she is qualified by education, training, or experience. This is closely related to the definition that the Social Security Administration uses in determining disability.
Disability insurance is an extremely important coverage to own. Unless you are wealthy enough that you do not need to work, disability insurance is essential. Everyone who needs their current income to maintain their lifestyle should seriously consider disability insurance.
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