There are things in life that we try to prepare for like marriage, childbirth, and of course, retirement. However, there are major life changes, the ones that are unexpected, that you might not be able to prepare for. Being stricken with serious illnesses is a perfect example. It can strike with little or no warning. Without enough money in your savings account, you are going to fight a difficult battle. Health insurance or health coverage is a necessity for working adults. Its primary purpose is to shoulder some if not all of the medical expenses. Whether it is an ongoing treatment for a chronic health condition like diabetes or cancer, securing health insurance is going to be a huge help.
Aside from health insurance, you also need to have disability insurance coverage. While it may not be important today, it will serve its purpose in the future. For instance, you are unable to report for work or perform your duties as an employee because of a debilitating illness. Disability insurance coverage will cover the income lost. Based on the report from the Bureau of Labor Statistics, only 39% of American employees were able to secure short-term disability insurance and only 33% had long-term disability insurance. This research was conducted in 2014.
If you do not prepare yourself for the worst, and you experience a serious illness that renders you immobile, you have no choice but to file a leave of absence from work. Not being able to work for a few weeks, months or worse, years, can have a serious impact on you. As an employee, your salary is your daily source of income. When your job is your only source for maintaining your standard of living, the lack of disability insurance can seriously hurt you financially. Like all types of insurance, disability insurance shoulders the ongoing cost.
Types of disability insurance
Disability insurance is also known as income protection insurance. It comes in two types: short-term disability insurance and long-term disability insurance. When it comes to the policy terms, you need to ask about the details from your insurance provider. What you will see in this article is just a basic overview.
Short-Term Disability Insurance
Short-Term Disability Insurance (STD) refers to policies that grant income protection to employees who are unable to work temporarily because of their disabilities. There are limitations when claiming your STD insurance. There will be a short elimination or waiting period which usually lasts one to two weeks. After which time, the policyholder will be able to receive benefits depending on the period of disability. For this form of insurance, the benefits will last no longer than 26 weeks. The benefits may also vary depending on the occupation and the policy. More often than not, it ranges between 50% and 70% of your pre-disability income. Take time to review your short-term disability policy as it may not include coverage for income loss for on-the-job injuries.
Long-Term Disability Insurance
The Long-Term Disability(LTD) policies cover income loss over longer periods of time. Like STD, long-term disability policies also have elimination periods, which range between one and six months, but there is also a possibility that it may take as long as 12 to 24 months. You should take note of the accumulation period as well. Typically, it stretches twice the elimination period’s length. During this period, the policyholder should accumulate enough cumulative disability time which should exceed the elimination period. You do not have to be continuously disabled during this period so long as you meet the threshold of the elimination period.
Once you meet the elimination period, the benefits will be payable in two options: when the policyholder is no longer deemed disabled or during the duration of the LTD policy. There are LTD policies that can last for a specific term. At times even up to 10 years but most policies still remain in force until the policyholder reaches the age of 65. In some cases, a policyholder who is more than 65 can still choose to continue the policy if still employed. For LTD policies, income replacement can range up to 70% of the policyholder’s pre-disability income. This form of insurance is also customizable.
How do you qualify for disability insurance coverage?
There are also key considerations that should be taken into account when claiming your disability insurance: Income, health, and occupation.
Applicants have to secure documented proof of income, such as bank account statements, profit-loss statements, W-2 and 1099 statements and prior year’s tax returns. Employer-sponsored policy applicants consider financial underwriting to be less daunting. However, you need to keep in mind that thorough income documentation is essential as the benefits you obtain from this disability insurance policy will be based on your income.
Since the purpose of a disability insurance policy is to replace a large fraction of the policyholder’s income, for months or even years, the medical underwriting process should be done in details. The process involves a health survey, medical exam and medical records. For the health survey, the insurance provider will give you a written or oral questionnaire, which covers your medical history, family history, habits, and lifestyle. Even things like mental health information and nicotine usage will also be included in the survey.
The medical exam involves undergoing a physical exam. Some policies consider blood or urine tests enough to determine the applicant’s medical condition, while others may need more to screen applicants for chronic conditions, drug usage, and cardiovascular issues. After the exam, the medical records for the last 5 to 10 years will also be reviewed. The underwriting process can be long and tedious. It may take weeks depending on the requirement you need to comply.
Finally, you should also provide detailed information about your occupation as it is an essential risk determinant. If you have a hazardous occupation, you can easily qualify for this form of insurance. Jobs with lower risks or the ones referred to as white-collar occupations may still qualify but will receive lesser benefits and indemnities.
There are many ways you can find a source of direct financial assistance aside from securing disability insurance. However, if you want to prepare yourself for circumstances beyond your control, it is essential that you secure all the necessary requirements.