What is Disability Insurance?

It is insurance to protect your income in case of an accident or illness making you unable to work.

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What’s the chance of becoming disabled?

A 35-year old has a 50 percent chance of becoming disabled for a 90-day period or longer before age 65. About 5.6 percent of working adults will experience a short-term disability due to injury, illness, or pregnancy every year.  More than 25 percent of today’s 20-year olds can expect to be unable to work, because of a disabling condition, for at least a year, before their normal retirement age. Over 37 million Americans were classified as disabled in a 2011 US Census Bureau Survey and more than 50 percent of those disabled Americans were in their working years from 18-64.

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Why do I need disability insurance if I have accident insurance?

Accident insurance pays a cash lump sum to cover health care expenses not covered by the health insurance plan. It does not protect your income.

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What is a typical disability insurance claim?

Ninety-five percent of disability insurance claims originate from non-accident scenarios: illnesses including cancer and other chronic illness like heart disease, stroke, MS and MD, Parkinson’s, etc.

 

Is disability insurance a substitute for health care insurance?

Although disability payments can be used to pay medical expenses disability insurance is not a substitute for comprehensive health insurance.

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Is it the same as Workers Compensation?

No. Workers Compensation only covers work-related accidents and illness.

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Do I buy a short-term or long-term disability plan?

You buy both. A short-term plan will pay for a short time 13-26 weeks whereas a long term plan will pay for years.

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Why do I need it if I get it through my Employer’s Group Plan?

Most employer-provided group disability plans cover only a portion of your base salary leaving bonuses, commissions, retirement contributions not covered. A group disability plan is not portable. It will end on the last day of employment. An individual plan is yours to keep regardless of the employer.

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What factors are considered in pricing disability insurance?

Factors include gender, date of birth, state of residence, occupation and job duties, income, desired amount of income protection, use of tobacco, known medical issues, medications, existing disability issues.

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How much does it cost?

The cost depends on various factors but in general around 2 percent of gross income.

 

Can I know in advance how much of my income I can protect?

Yes. Generally, the higher the premium the higher percentage of income can be protected.

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Why pay for disability insurance if I can get it for free from the Social Security Administration (SSA)?

SSA does not provide short-term disability payments and the definition of disability is very strict. Under SSA rules a person is disabled if unable to work due to a severe medical condition that is expected to last at least one year or result in death. The definition is so strict that among those who start receiving disability benefits at age 55, 1-in-6 men and 1-in8 women die within five years from the start of their disability. SSA disability payments are relatively small. The average payment in as of 2018 was $1,197 per month.

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Can disability insurance be integrated with Social Security Disability?

Yes. Generally at age 65 or full-retirement age. Any disability payments from Social Security will decrease the payments from your private disability plan.

 

Is disability income taxable?

If the cost is entirely paid by the employer in a group plan, disability income is taxable. If paid by the individual in an individual plan, it is not taxable.

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When do I start receiving disability payments?

Under a short-term disability plan you can start receiving disability payments between 1-4 weeks from the date you became disabled. Under a long-term plan disability payments begin within a few months from the date of disability.

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For how long do I receive disability payments?

Under a short-term disability pan disability payments can last up to 26 weeks. Under a long-term plan payments can last a lifetime provided your condition still qualifies under the plan.