In practically any part of the world, when someone is disabled as the result of an injury or an accident, they find themselves incapable of any work. As a result of this, they are left with no source of income, financially handicapped and their quality of life reduces.
Is there any way to work around this and prepare for unplanned disability? Well, you may not be able to predict if and when disaster strikes, but you can protect your financial stability in case it does, by simply investing in disability insurance.
What is Disability Insurance?
Disability insurance provides a solution to the problems that a sudden injury or illness may leave in its wake. To ensure that your financial independence is not reduced in case you’re disabled and unable to work, it provides you with an alternative income source that can help you meet expenses and maintain your quality of life.
Depending on what you were earning before the disability, you could receive anywhere from 45-60% of your income with disability insurance. The payouts and benefits are normally tax-free, which reduces the worry of financial liabilities even further. Since disabilities and their circumstances differ, the various plans and coverage differ as well.
When Should You Consider Buying Disability Insurance?
This insurance is not necessarily for individuals with a perpetual injury, but should be considered by all. Anyone with a whole family reliant on them should take up disability insurance, so that in case of any mishap they can continue to provide for the family through this program.
Disability insurance provides protection for health-related expenses, and serves as a replacement income source if you can no longer earn. The insurance policy ensures a return of sixty percent of what was lost as a result of an unexpected mishap.
How to Shop for Disability Insurance
Understanding the circumstances of your own situation and the terms of this insurance is essential. With the assistance of an agent, this insurance can help in providing you and your family with the same kind of security and comfort they enjoyed when you were earning. Keep a few things in mind before buying disability insurance:
The first and most important thing is to buy disability insurance when you are still healthy, active and earning. Insurance policies usually demand a lot of paper work and investment, and if you consider it after you are no longer earning, then the process will become quite daunting and often even impossible to achieve.
The installments you receive once the policy kicks in are directly dependent on how far ahead of time you applied for it. Several individuals make a wise move by applying for this in their youth and begin utilizing it thirty to forty years later. The amount of each installment around that time is often thrice of what was initially offered.
The maximization of the installment payments also depends on what you are currently earning. If your income has been varying then the policy will consider a net average of your income over the course of the previous three to four years. This helps you get a fair idea of what you will get once the insurance starts.
When you know all the requirements, you can shop around for the best disability insurance package. The final choice you make should not be dependent on the price of the policy but on the features and aids it will offer once you start to utilize it.
Projected Increased Numbers in 2015
If you have been considering disability insurance, then 2015 may be the best time to do it. The reason for this is the anticipated increase of 1.7% in the living expenditure provided to individuals. Social security is also going to be increased to allow people more financial benefits. So if you have been considering buying the policy, now is the time to do it!
Statistical Analysis on Disability Insurance
It has statistically been proven that one out of four individuals in their 20s buy the policy before they hit retirement. Twelve percent of the entire American population has applied for disability insurance, which makes for roughly 38 million applicants. More than eight million have already qualified for the security of disability insurance.
Is Disability Insurance Worth Buying?
Many people will question whether this insurance policy is even worth buying or not. Here is their answer:
- When Disability Insurance is a Good IdeaInvesting in disability insurance is a wise choice if you alone earn income and/or have others dependent on you. Being disabled for even six months to a year can leave you in a financial mess, eating into their savings with no way to replenish them till they return to work. On the other hand, a long-term disability often causes people to take on extra debts or even file for bankruptcy!
On the off chance that you are disabled in your early 30s, you will be left without a source of income and no way to pay your bills. In fact, the chance is not all that unlikely, since there is a greater possibility of disability that death during your working years. Despite being unable to work, your monthly income will not be stopped if you have a good disability insurance plan in place.
- When Disability Insurance Not Such a Good Idea
Since disability insurance is an added expense in the form of premium payments, you should gauge your requirements carefully and decide whether you do need it at all. In case you and your spouse are both working, it may be possible to meet expenses even if one income source is depleted. In cases like this, covering one partner may be enough.As you plan for life insurance or any other coverage, consider whether it may offer you enough benefits in the form of periodic payments so that you can supplement your savings. If you’re not financially capable of paying extra premiums for additional policies, taking on a disability insurance plan could lead you into debt or bankruptcy in the future.
Variations in Disability Insurance Policies
There are various types of disability insurance and you should consider them all before you decide to buy one. Let’s take a look at some of the options available:
- Business Overhead Expense Disability InsuranceIf the owner of a business suffers a disabling injury, then through this policy program the business will be helped in continuing to maintain and pay rent, mortgages, property tax, utilities, leasing costs, laundry/maintenance, premiums for business insurance, salaries and benefits for employees, accounting,
billing and collection service fees, etc.
- Individual Disability InsuranceUnlike the previous program, this policy is for self-employed individuals independent of any company-offered insurance. Premiums and benefits vary further depending on the applicants and their particular requirements, like their occupation, the state they work in, how quickly payouts will begin in case of a disability and how the disability is defined for the policy. It can be quite expensive to buy, but offers a wide range of benefits.
- Employer-Supplied Disability InsuranceAs the name suggests, in case of a disability suffered by an employee, an employer can offer disability insurance for the benefit of their workers. Since disability often occurs due to accidents at the workplace, many employers are required to offer an insurance plan and benefits to their employees. If your employer offers disability insurance and you are disabled while working for them, your income will be protected automatically.
- High-Limit Disability InsuranceMost disability insurance plans feature a cap of around $20,000-25,000 on the maximum monthly payments you can receive, so many people opt to supplement existing coverage with high-limit policies from other carriers. A high limit disability insurance plan insures and promises the spare of 65% of your independent income, regardless of how much it was before, and can offer $2,000-$100,000 additional monthly funds.
- Key-Person Disability InsuranceWhen a significant member of a certain company is disabled, this policy protects the company from financial loss and allows the business to continue earning. With a key-person disability plan in place, the company will receive cash flow and benefits that act as the investment required to maintain profits. It may also offer extra benefits that allow the company to hire a temporary replacement for the significant person who is disabled.
- Workers’ CompensationThis policy is far more than a simple replacement of the income lost when a company’s employee is disabled and cannot work. The worker is provided with compensation for financial loss, reimbursement for medical and related expenses, payment of damages and other accidents, etc. This kind of plan also offers death benefits to a worker’s estate, thus providing them with greater security for their families in case of their death.
- National Social Insurance ProgramsThis particular policy provided by the national government as Social Security for the benefit of citizens, specifically Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). They are designed to offer coverage to people who may not have an insurance plan of their own or not enough coverage in their current plan. While Social Security may not offer high benefits, it does act as a basic form of protection that can help you prevent bankruptcy or debt.
Questions to Ask before Purchasing Disability Insurance
Before you purchase a disability insurance policy, here are a few questions you should consider:
Q1. How does the policy define the idea of disability?
Q2. What is the time period of this policy? When does it kick in?
Q3. Does it make a difference if your disability allows you to continue working though not the same way?
Q4. Will your premiums be returned if you do not make a claim?
Q5. Will the policy adjust with the times?
Q6. If you shift, will the policy shift with you?
Q7. What are the credentials and past experiences of the company offering this insurance?
Q8. Under what circumstances is the policy cancelled?
Q9. Does this policy offer any tax benefits?
Once your queries have been answered then it is time to make the purchase. You should weigh in your options considering the different insurance policies available, as this will help you minimize your risks in the future, and find the best insurance plan for your particular needs.