If you and your loved ones depend on your salary for support, then you probably need long term disability income insurance. Learn about this “forgotten risk” and how to protect yourself.
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If you and your loved ones depend on your salary for support, then you probably need long term disability income insurance.
Think about it: if you were to become disabled, even for a few months, how would you and your family manage? Who would pay your bills? Disabling illness or injury is one of the leading causes of bankruptcy in the United States.
Most people do not realize that their chances of becoming disabled are greater than their chances of dying prematurely. Yet they are more likely to buy life insurance than disability insurance. For this reason, people in the insurance industry call disability “the forgotten risk.’ According to statistics from the Journal of the American Society of Chartered Life Underwriters, if you are age thirty to fifty-five, your chances of becoming disabled are two to three times greater than your chances of dying.
If you are thirty-five years old, you have a 50:50 chance of experiencing a disability lasting last three months or longer before you retire. One in seven workers will become disabled for more than five years before he or she reaches age 65.
Many people mistakenly believe that the government or Worker’s Compensation will pay them an income if they become disabled. Actually, more than 80% of the people who apply for Social Security disability benefits are rejected. Social Security does not pay benefits for partial or short-term disability. Your disability has to either last a year or be expected to last a year before you can collect Social Security. Worker’s Compensation pays only if you were injured on the job and benefits are often limited to a few years.
Your health insurance will cover your hospital, doctor and other medical bills, but you will still not have a salary. Long-term care insurance only covers bills from nursing homes or assisted care center. Disability insurance, however, does not pay bills. Instead the insurance company gives you money on a regular basis. It is designed to replace your salary so that you and your family will not experience financial hardship during any period when you are too sick or injured to work.
What should you look for when you are buying long term disability insurance? First, the insurance company itself should have a top rating from Moody’s, A.M. Best, and Standard and Poor. These agencies rate companies in terms of capitalization, growth, earnings and other indicators of financial stability.
Secondly, you should make sure you understand the terms of your policy. Some policies require a waiting period before you start receiving benefits. For example, your policy may have a six-month waiting period before benefits are paid. In this case, your benefits would begin six months from the time of disability.
The waiting period is often called the elimination period. Choices usually range from 30 days to 720 days.
Look for a waiver of premium provision. This means if you become disabled, you will not have to keep paying for your disability policy.
What are the conditions for renewing the policy? If you’re policy is not automatically renewable, the insurance company has the right to cancel it.
Payment period options are another consideration. Some policies will only pay for a certain period of time, sometimes for only two years. Other policies last a lifetime. The most popular policies pay benefits until you reach retirement age, when you can begin to collect Social Security payments.
Most policies have a residual disability clause. If you suffer a disability, very often you will return to work part-time at first. Or because you were off work for a while, it may take you time to build your business back to the level it was before you became disabled. Your insurance should provide income for both these scenarios.
Check over the policy for a recurrent disabilities benefit. A recurrent disability is one that happens after you recover from your original disability. Your insurance should waive a new waiting period and/or not require proof that the two disabilities were related.
When you buy disability insurance, you buy it according to your income level. The more money you make, the larger the benefit of your policy. But you also have to figure that your income will rise as you get older. For this reason you want a future increase rider or automatic increase rider. These riders allow you to keep your policy but increase the amount of your benefits based on your increased earnings as you grow older.
When you buy your insurance, certain factors will affect your price. You will pay less for the insurance if you decide to replace 50% of your income instead of 80%. You also pay less if you opt for a longer elimination period. The insurance company factors in your current health and may exclude preexisting conditions. Women and smokers may pay more for disability insurance because they make more claims than non-smoking males. If you are in a high-risk job, your policy may cost you more.
Disability insurance policies can be confusing. It is always best to sit down with a professional insurance agent to discuss the terms of the policy together and to ask questions until you completely understand the details of the policy quotes being presented.