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.
Short term disability (STD) pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work for a short period of time due to sickness or injury (excluding on-the-job injuries, which are covered by workers compensation insurance). A typical STD policy provides you with a weekly portion of your salary, usually 50, 60, or 66 2/3 percent for 13 to 26 weeks.
You generally start receiving money from your STD policy within one to 14 days after becoming sick or disabled. The actual time for coverage to kick in depends on whether you suffer an illness or injury. If you suffer an injury, your benefits will be paid immediately. If you suffer an illness, it will take longer because there needs to be enough time to show that the illness is grave enough to be disabling.
Group STD Policies
Some employers offer Group Disability Insurance and this may be one of the benefits where you work. Group STD policies are "guaranteed issue," meaning you do not have to take a medical exam to prove insurability.
Variables in coverage
Insurance is always complicated and disability is no exception. There are all kinds of disability policies and permutations. However, the basics are simple.
The first variable is the amount of monthly benefit. Most disability policies have a fixed monthly benefit that does not increase with time, although you can purchase extra coverage, or riders, that offer higher payment schedules
The second variable is the definition of disability -- whether it is “own occupation,” or the inability to perform the duties of your specific occupation, or “any occupation,” the inability to perform the duties of any job for which your education and training make you qualified.
The third variable is the waiting period, or the amount of time you must be disabled before benefits kick in. These waiting periods can range from one week to two years, and the longer you wait the less your disability policy will cost.
The fourth variable is the benefit period, or how long you will receive monthly benefits once your policy starts paying.
If you were to become sick or disabled tomorrow and were unable to work for two or three months, would you have enough savings to cover your living expenses during that time? If you don't, short term disability insurance would be an invaluable resource as you recover so you can get back to work.
