In ensuring that you are well-prepared for your future, securing insurance is one way to build a financial safety net. However, when your ability to earn is hampered by illness or injury, paying your bills or meeting your needs will be a challenge. It is common for many individuals to apply for health or life insurance. You also need to protect your income, especially if you are unable to work. This is where disability insurance comes in. It comes in short-term and long-term versions.
Disability insurance serves as insurance for your income or paycheck. If you are unable to work, the insurance will be a replacement for your income stream. With a steady income despite illness or injury, you will manage to put food on your table and buy your basic necessities.
You can also maintain your lifestyle as you have prepared for these circumstances. When you read your policy, you will be able to know the details of the insurance. Disability insurance has different features and guidelines. The benefits are determined based on the following factors:
This is also referred to as the waiting period or the amount of time that you have to wait before you start receiving benefits. The rule of thumb is that the longer you wait, the more affordable the policy.
The benefit period is the length of time you will be receiving benefits. For short-term disability insurance, your maximum benefit period will be 52 weeks. The long-term disability insurance, on the other hand, provides you with benefits until retirement.
The benefit amount refers to the amount you will receive every month. Most cases compute the disability benefits based on your pre-tax pay.
The premium will be the amount you are paying each month for your insurance policy. The cost will be determined based on your benefit amount, elimination period, benefit period, and other policy specifics.
Types of disability insurance
When securing disability insurance, it is vital to know which type is right for you. While all types of disability insurance give you the same service, there are still differences in terms of the benefit period, the policy cost and the location where you can apply for it.
Social Security disability insurance (SSDI)
This type of insurance is given by the federal government via the Social Security Administration. More often than not, individuals under the age of 65 can qualify for the SSDI benefits, but you should not rely solely on it. For one, it is not easy to qualify for SSDI. Almost 65% of initial claims have been rejected due to the strict definition of disability. Even if you qualify for this insurance, you have to wait for two years to get the benefits. There are also restrictions when it comes to the coverage.
Short-term disability insurance
These insurance policies are obtained from your employer. It is a low-cost or free benefit. If you intend to purchase it separately, the cost will be almost the same as the long-term disability policy even if the benefit periods are different. This type of insurance can provide beneficiaries with up to 80% income replacement. You need to make sure that your short-term disability insurance has expired before considering applying for long-term insurance.
Long-term disability insurance
The long-term disability insurance policy is offered as a group coverage by an employer. If you want more comprehensive coverage, you can also privately purchase the insurance. This policy can last up to 10 years or even until retirement. The cost will usually be 3% of your annual income. For most individuals, long-term disability insurance has the best policy because you can enjoy the benefits longer than the short-term insurance and you can easily qualify for it.