The most valuable asset you have isn’t your car, home, or retirement account. It’s you! You and your ability to make a living. Disability insurance is a type of insurance that you can purchase that insures that you will be provided an income if you are unable to work due to a disability.
There are two main types of disability insurance, both of which replace a portion of your salary up to a certain cap:
Short-term disability: offers workers a portion of their salary if they are unable to work for a short time, typically three to six months. It usually replaces 60% to 70% of base salary.
Long-term disability: offers workers a portion of their salary if they are unable to work for a more extended period, usually longer than six months. It typically replaces 40% to 60% of base salary.
Disability insurance can be purchased privately; for example, many life insurance companies offer disability insurance. Your employer may offer disability insurance or Social Security also provides disability insurance.
Both short-term and long-term disability insurance have an elimination period, that insured individuals must be disabled for, before receiving benefits.
Is disability insurance right for you?
More than 1 in 4 20-year-olds will experience a disability for 90 days or more before retirement, according to the Social Security Administration. We often think of catastrophic events like a massive car accident, but most disability claims come from back injuries, heart attacks, diabetes, cancer, and other illnesses. Anyone who relies on a paycheck should consider disability insurance.
How to get disability insurance:
Employer-sponsored coverage at work – Most employers that offer disability insurance pay some or all of the cost of the premiums.
Purchase disability insurance through your work – Some employers don’t pay for disability insurance but offer it as a voluntary benefit you can select. Purchasing through your employer allows employees to receive group rate discounts offered through your employer’s insurance broker.
Purchase an individual disability insurance plan – You can get disability insurance from an insurance broker or directly from an insurance company.
Why buy a disability policy yourself?
Collect benefits tax-free – If you become disabled and your employer pays for the insurance, you must pay taxes on the benefit when you receive it.
Customize the coverage with additional add-ons – Having a policy yourself will allow you to add extra features, such as the cost of living adjustment.
More Options – You can select the insurance company with the best offerings for the best value.
Keep the coverage if you change jobs – If your employer is paying the premium, then you will lose coverage when you leave the company. You may be able to keep the coverage if you are paying the premium. However, buying coverage on your own makes it, so you don’t have to worry about changing jobs.