Whether you agree or disagree with the statement that money can buy happiness, the fact remains that everyone needs money no matter what.
When it comes to financial planning, people usually overlook the importance of life insurance. As for its sibling, i.e., disability insurance, well, the chances are that many people aren’t even aware that such a policy even exists.
You might save money for a rainy day, but have you ever wondered what would happen if you got in an accident or suffer from an injury that makes you unfit for work for a long period of time?
Needless to say, the setback might be much more severe than you could imagine. It is during such adverse times that having disability insurance proves fruitful.
While it is good to be optimistic, it is better to be realistic and plan ahead for any unfavorable circumstances that you might face in the future. After all, as the saying goes, better be safe than sorry.
Plus, did you know that the chances of being disabled are about 3 times more likely than death itself?
Therefore, you must apply for disability insurance regardless of the nature of your work. And before you select any insurance package, read this comprehensive blog post to find out which one will be the right fit for you.
Knowing all your options will help you make an informed decision and make sure you stay protected in terms of earning even when you can no longer work.
Disability insurance is broadly classified into two types, short-term disability insurance, and long-term disability insurance. But there are many variations in categorization. These other types of insurance are often the extended versions or features of the two main types mentioned above. However, they might also be considered as standalone disability insurance policies. Consult the relevant authorities if you have any queries to clear the confusion about the type of insurance applicable to you.
According to the Time Period
1. Short Term Disability Insurance
Short-term disability insurance means that the insurer will get a certain portion of their regular salary if they are unable to work for a ‘short’ period of time.
The amount of salary paid in disability benefits is usually around two-thirds of the normal salary. And the ‘short’ period is usually about three to six months. However, if your insurance company is really generous, then the time period for availing benefits from short-term disability insurance can be extended up to a maximum of two years.
Remember to check the documents or ask your insurer for the duration of short-term disability insurance that they offer.
Most employers offer short-term disability insurance to their employees. If your company provides the same, and you happen to suffer from a severe injury or a major illness, then you can make a claim through your disability plan.
However, make sure to consult the Human Resource department of your organization first. Ask for the details of your disability plan and inquire whether any sick pay or vacation time policies apply to your particular case.
In most companies, being eligible for short-term disability insurance requires that the employee works at least 30 hours a week and should have served a certain time period in the organization. Also, this type of insurance usually has an elimination period of 8 days.
The elimination period is the time during which you must have been unable to go to work before being eligible for disability insurance.
2. Long Term Disability Insurance
Long-term disability insurance covers disability for an extended period of time.
It is applicable in cases in which a person has a tragic accident or suffers from a disease that requires several months or even years to recover from. If your employer provides long-term disability insurance then the benefits from this insurance can be availed when your short-term disability insurance has ended and you have used up all the sick leaves benefits from your organization as well.
Usually, a long-term disability insurance plan covers about 60% to 70% of your normal salary but remember that each plan is different. Always read the policies thoroughly and carefully before you sign up for any disability insurance program.
Moreover, if you are unable to work even after the short-term insurance has ended, then your employer or the insurer may provide you with disability benefits for about two years. After this
duration has been completed too, then whether you will continue to receive disability benefits or not will depend on your condition.
If you are able to work at any other, simpler or easier job than the one you had before becoming disabled, then your insurer is unlikely to continue paying you the benefits. Even if they do continue, they will most probably pay a smaller percentage of what you were being given before you found the job and were instead under the insurer’s protection.
On the other hand, if you are unable to work altogether due to your disability, then long-term disability insurance could mean that you will receive the disability benefits up to 60 -65 years of age (retirement age) or in some cases, even for your entire lifetime.
According to the Insurer and the Insured
3. Individual Disability Insurance
This type of disability insurance can be availed by all self-employed workers or employees who are not insured by their organizations.
The premiums and the benefits that will be provided under this policy will vary for different individuals. Factors such as the person’s needs, the kind of work and the disability involved as well as the state that the individual resides in will determine the benefits that they receive.
4. Business Overhead Expense Disability Insurance
While Individual Disability Insurance is intended to help employees themselves, Business Overhead Expense Disability Insurance is meant to help business organizations that suffer a loss due to their owners suffering from a disability.
The benefits paid by this insurance can help the owner cover fixed or overhead business expenses such as the rent, maintenance costs, equipment costs, mortgage payments and so on.
5. Key-Person Disability Insurance
As the name suggests, this type of insurance is meant to protect a business from incurring losses if an employee who was a part of the central business operations becomes disabled or is unable to come to work.
If a person of key importance who manages the operations, oversees all processes or is crucial to the organization in any other way is no longer able to perform his regular duties, then the company can file for Key-Person Disability Insurance. This will help the business to continue working smoothly without affecting its operations and prevent downtime.
6. High-Limit Disability Insurance
High-limit disability insurance allows you to enjoy additional coverage over and above any disability insurance that you might be receiving already.
With this insurance policy, the insured is entitled to a 65% income replacement no matter what their income group is.
7. Employer-Supplied Disability Insurance
Employer-supplied disability insurance is commonly provided to employees working jobs that are dangerous by their very nature.
This may include work that is done in harsh weather or extreme conditions. Or it may also include jobs that involve working with heavy machinery and jobs that overall, have a high risk of an accident. Therefore, employers insure their workers against work-related injuries.
However, it is important to note that this type of insurance can only be availed if you are disabled by an injury or have an accident while you are at work.
8. National Social Insurance Programs
National Savings Insurance Programs is provided by the government to its citizens.
This is also called Social Security and it ensures that every disabled citizen is given enough monetary resources that they are able to afford the basic necessities of life and fulfill their fundamental needs.
Related Post: When Should You Hire a Social Security Disability Lawyer?
Other Types of Disability Insurance
9. Non-cancelable disability insurance
This type of insurance should only be bought if you are 100% sure that you can afford it throughout.
The insurance company cannot cancel your insurance unless you stop paying for it. A great benefit of this type of insurance is that the rate remains the same and you have the authority to withdraw the amount and cancel your insurance whenever you want to.
10. Guaranteed Renewable Disability Insurance
While you cannot renew your coverage in non-cancelable disability insurance, you can do so in Guaranteed Renewable Disability Insurance.
The only drawback of this policy is that the insurance company can raise the premium if you want a renewal. Before asking for a renewal, consider factors such as whether you can pay the higher premium in the future or not. If you think that you can apply for disability insurance in another company, remember that new insurance policies almost always cost higher than renewing an existing one. Hence, weigh out all your options carefully before making a final call.
11. Conditionally Renewable Disability Insurance
If you buy a Conditionally Renewable Disability Insurance policy, then your insurer can cancel the policy if any one of the conditions in your insurance contract is fulfilled.In such a case, your premiums will most probably increase as well.
As most group insurance policies are usually conditionally renewable, you might be able to avail the insurance at quite a substantial rate.
12. Cost of Living Adjustment Disability Insurance
Cost of Living Adjustment Disability Insurance is highly beneficial when the economy is constantly fluctuating.
Inflation increases the cost of living and this could decrease living standards. Disability insurance with cost of living adjustments means that the benefits you receive will also increase if the cost of living rises. How much it rises is determined by the Consumer Price Index.
