Disability Insurance Basics

Disability Insurance is designed to reimburse lost wages in the event of a disabling accident or illness. Different policies have different stipulations but nearly all require a waiting period before disability payments begin and will reimburse for a pre-defined percentage of your income, generally 45% – 60%. There are two broad categories, Long Term Disability (LTD) and Short Term Disability (STD). Premiums and waiting periods will differ between the two types along short term and long term category lines.

Many people forgo disability protection because they don’t think about it or assume that their employer’s benefits or Social Security will provide for disability income. Yet the need for disability protection is greater than for life insurance, at least when considering the probability of becoming disabled for some significant interval versus dying prematurely. The American Council of Life Insurers determined that a 35 year old is six times more likely to become disabled than to die before age 65.*

Employer plans vary and may not replace as much of your income as you might need to maintain your household. The same is true for Social Security. Another area where employer plans or Social Security may fall short of meeting your protection needs is in the Benefit Period or that interval of time during which benefits will be paid. Some policies provide only up to two years.

Finally, it pays to look at the definition of disability which also varies by policy. Social Security, for instance, bases the definition of disability on inability to work – not inability to perform your current job or run your business.

*Independent Agent, April, 2006

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