Are you vulnerable to the financial risk associated with disability? If you’re like most Americans, the answer is probably yes. According to the Council for Disability Awareness, nearly 70 percent of American workers in the public sector have no private insurance coverage for long-term disability. That’s in spite of the fact that 25 percent of working adults will suffer a long-term disability at some point in their lives.1
Long-term disability can be caused by any number of issues, ranging from accidents to chronic injuries to illnesses and more. If you suffer a disability and are unable to work, you could face steep medical bills along with the burden of funding your expenses while not receiving a paycheck.
Disability insurance can be an effective way to minimize this risk. With long-term disability insurance, you pay premiums today in exchange for a monthly benefit should you ever become physically unable to work. The monthly benefit is often calculated as a percentage of your salary. So you can think of disability insurance as an income replacement vehicle.
If you’ve never considered disability insurance before, the different features and choices could overwhelm you. Many disability policies have a variety of options and benefits. The good news is those features often allow you to create a policy that meets your needs and fits your budget. However, you could find the process of choosing the right policy a bit complex.
Before you settle on the right policy for you, make sure you do your due diligence. Below are a few questions to consider before you buy a disability policy. If you can’t answer these questions, you may need to do a little more research.
What is the elimination period?
As the name suggests, a long-term disability policy is designed to cover ailments that are expected to last for an extended period of time. That means most long-term disability policies don’t cover issues that could last only a few months.
That’s why many long-term disability policies have what’s called an elimination period. The elimination period is a designated amount of time you must wait between when you suffer the disability and when benefits begin. It often lasts anywhere from 30 days up to six months or even a year. When you buy your policy, you may be able to shorten or lengthen the elimination period. Generally, a shorter elimination period leads to higher premiums.
It’s important to know what your elimination period is, because you will likely need to have other forms of protection in place to cover you during this time should you become disabled. For example, if you suffer a disability and have a three-month elimination period on your insurance policy, you may need to rely on personal savings or even a short-term disability policy to cover the gap.
How long do the benefits last?
Long-term disability insurance policies don’t pay benefits forever. When you purchase your policy, you will likely select a benefit payment period. For example, you might opt for a benefit payment time frame of three years, five years or more. You could even select a benefit time frame that lasts to age 65.
Everything else being equal, a longer benefit payment period will usually result in higher premiums. If you’re relatively young, however, you may want protection that lasts for many years. If you are approaching retirement, a shorter time frame may be more suitable.
Does it cover own occupation or any occupation?
Some long-term disability insurance policies make a distinction between what qualifies as a disability and what does not. One of the ways this determination is made is by reviewing whether you are capable of working in any capacity.
Some policies will pay benefits only if you are physically unable to work in any occupation. In many instances, this requires you to be nearly totally disabled to receive benefits.
Other policies will pay benefits if you can work other occupations but are not able to work in your own occupation. Generally, an “own occupation” policy costs more than an “any occupation” policy. If you work in a highly skilled profession, however, you may want to consider a policy with an “own occupation” designation.
Ready to protect yourself against the risk of disability? Let’s talk about it. Contact us today at TB Financial. We can help you analyze your needs and develop a protection strategy. Let’s connect soon and start the conversation.
1http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
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