Understanding different types of insurance policies, and knowing when you should consider purchasing them, can be confusing. When it comes to disability income insurance, also known as disability insurance or DI, people often underestimate their need for coverage.
After all, if you’re in relatively good health today and always have been, it’s tough to imagine yourself becoming disabled or living with a health condition that makes it impossible to work. However, the harsh reality is that disability can strike anyone – at any time. According to the Social Security Administration, one in five Americans live with a disability today, and more than one in four of today’s “20-somethings” will become disabled before they reach normal retirement age.
When you purchase disability insurance, you are hoping that you’ll never need to use it. If you do end up needing it, however, the policy benefits can protect you and your loved ones from financial stress.
If you’re like most people, you have monthly financial obligations that would continue regardless of your ability to earn an income. Things like a mortgage or rent payments, car payments, insurance premiums, phone and other utility bills, credit card payments and daycare expenses will all continue to roll in, even if your paychecks come to a halt. If you found yourself unable to work and didn’t have adequate insurance protection, this could mean dipping into savings to pay for these regular bills and for basic needs like food and clothing. Making matters worse, a disability diagnosis also often comes with increased medical expenses and prescription drug costs.
When you have disability insurance and become disabled, the insurance company pays you a fixed, pre-determined monthly benefit amount. Those monthly payments can be invaluable in providing you with the funds you and your loved ones need to continue your current standard of living while you adjust to your disability and work on taking care of your health.
There are two main types of disability insurance policies: short-term and long-term coverage.
Short-term disability insurance is designed for situations where your disability is expected to last no more than six months. Policies typically stop paying benefits at that point. So, if you have a longer-term illness or condition but only have a short-term disability insurance policy, you could find yourself without the financial support you need.
Long-term coverage is designed to cover disabilities that are expected to last years. The exact amount of time the insurance company will pay benefits varies from policy-to-policy; some are designed to make payments for two to five years, while others may pay benefits until you reach retirement.
While many people would have the financial wherewithal to cover their financial obligations for the short term, a long-term disability could quickly deplete accumulated savings, forcing tough decisions about how to reduce ongoing expenses.
When insurance professionals broach the subject of disability insurance with clients, we often hear “I already have coverage.” While that’s great, when we probe a little deeper, we sometimes learn that the client is counting on either a disability insurance policy provided by their employer or is assuming Social Security Disability coverage would be enough to meet their needs. There are potential problems with both assumptions.
First, employer-sponsored disability insurance may not be “portable.” That means that if you leave your employer voluntarily or if the company eliminates your job, you could find yourself without coverage. Employer-sponsored coverage may not offer enough protection either. Your Independent Insurance Agent can help you evaluate existing coverage and determine whether it makes sense to supplement that coverage with a standalone policy.
If you are relying on Social Security Disability to meet your needs, should a disability strike, know this: qualifying for benefits under the Federal program is notoriously difficult. That’s because, in part, the definition the Social Security Administration uses for “disability.” To obtain Social Security Disability benefits, you must be able to prove, through medical evidence, that your disability makes it impossible for you to work in any occupation for which you are otherwise qualified based on your education and job experience, and that your disability is expected to last for at least one year.
In contrast to the “any occupation” standard used for Social Security Disability, most individual disability policies use an “own occupation” definition of disability. This means that you only must prove that your disability is keeping you from working in your current occupation.
Note: there are nuances to the way insurance companies define “own occupation,” so be sure you fully understand any policy you are considering purchasing.
Almost everyone in their working years can benefit from having the income protection offered by disability income insurance. To learn more about how this important coverage works and to get insurance quotes, work with an Symmetry Financial Group Independent Insurance Agent.
We work with dozens of insurance companies, so we can help you find coverage tailored to meet your needs and budget. Contact us online today to get started!