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Disability Income Insurance is a good policy to have in addition to your medical insurance. When you are unable to work due to a disability, this insurance kicks in to replace your income so your bills can be paid. Benefits are usually a stated amount based on a percentage of actual income amount, usually about 60-70%.
Premiums for disability insurance are based on morbidity tables that predict the frequency and length of claims. And, the premium is usually based on a number of factors, including, occupation, amount of income, the policies definition of a disability, length of benefit period and the length of the elimination period.
It is in the insurance companies best interest for the insured to recover and go back to work, that is essentially why the period payments are not intended to replace 100% of the earned income.
The disability can be caused by an accident or sickness based on policy specifications. Some insurers are more stringent than others with the definition.
Social Security, also known as Old Age Survivors Disability Income Insurance (OASDI), is a federal program which protects workers against financial loss resulting from death, disability and old age. Social Security disability benefits are available to workers who are fully covered at the time of disability. Social Security is funded by contributions from both the employer and the employee.
Disability insurance can be sold as individual or group plans. In group plans the organization or employer owns or sponsors the contract.
Short Term Disability
Provides short benefit periods of less than 2 years. Most group disability policies are short term. It excludes work related injuries and doesn’t coordinate with Worker’s Compensation. The elimination period is usually no more than 30 days.
Long Term Disability
Pays a benefit for a period of 2 years or more, or until the insured reaches the age of 65 years. It will coordinate with Worker’s Compensation and Social Security Disability. Elimination period is usually between 30 – 180 days.
Lump Sum Disability
Most disability payments are paid in monthly installments, but they can also be paid in a lump sum payment. If paid in a lump sum, it must be paid immediately after written proof of loss is received.
Business Disability
Businesses can purchase Key Person Disability insurance that is paid directly to the business to help them hire additional help while the employee is disabled. The business owns the policy, pays the premium and receives the benefit.
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