Disability Income Insurance FAQ's

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Disability Insurance has often been called the “missing piece” in family planning. Most responsible adults realize that life and health insurance are essential, but many also mistakenly depend on an employer for disability insurance. When disaster strikes, they are woefully disappointed.

Life insurance provides your family with a way to pay bills if you should meet a premature death. Health insurance pays your medical bills. However, unless you have an income, you risk losing both of these important benefits because of an inability to pay your premiums. Disability income insurance gives you a paycheck while you are disabled.

What are my chances of becoming disabled?
If you are below the age of 50, your risk of becoming disabled is 60% greater than your risk of dying. The numbers are increasing due to diabetes and other chronic ailments that are striking younger groups of people

Isn't my employer’s disability insurance sufficient?
Aside from the fact that many employers have been curtailing extra benefits, the group disability insurance is often only “short term,” meaning it will continue your paycheck for a few days or weeks if you should need surgery or have a sudden illness. Some employers have “long term” disability (which is often mistaken for “long term care”) which continues a portion of your paycheck for one or two years. Having your own disability policy will provide you with an income when your employer’s insurance is exhausted.

How does having disability insurance help?
The best disability polices are also called “income replacement” because they replace the after tax portion of your salary, usually up to 80% depending on the initial terms of the policy. The higher percentage you choose, the higher your premium will be. However, it provides you and your family with an income to continue paying your bills so that you don’t lose your other insurance polices and your home.

How much insurance do I need?
You want to come as close to your income as possible. Most companies will allow you to replace up to 80% of your income if you can afford the premium. Since the income is non-taxable, and since approximately 20% of your current income is taken for taxes and Social Security, 80% would be most of your take-home pay.

What should I look for in a policy?
A policy that will give you the most peace of mind should contain the following features:

  • Payment for either partial or full disability with the option of working part time if you are able;

  • Premium waiver once you start using the policy

  • Renewability—that is, if you use the policy and are able to get off disability and return to work, you still have your policy in the event of a second occurrence of a disabling condition;

  • Continuation to age 65 if permanently disabled;

  • Continuation of payments even after becoming eligible for SS disability (Social Security disability is only a fraction of your paycheck and is usually very difficult to live on.);

  • Possibility to convert to Long Term Care Insurance upon reaching age 65.
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