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Disability Insurance - Protect Your Earnings
Many individuals have lofty plans for the future, but illness or injury could derail those dreams. Disability insurance provides protection against this risk.
Insurance companies use underwriting as a process for deciding if and how much a policy costs, reviewing medical records and other data to decide if they'll offer coverage and the costs involved.
Why It Matters
No one anticipates becoming disabled, yet that is often what happens. Without disability insurance, losing income can leave families struggling to meet daily and recurring expenses - it is one of the leading reasons for individuals filing bankruptcy! By having an income protection plan in place you can help ease financial strain during difficult times while protecting against unexpected hardships.
Your policy type and choice can have an effect on how much premiums cost, depending on several factors like existing health conditions, age and work in an inherently risky profession. Premiums tend to be higher for individuals earning more and being older while group coverage provided through employers typically offers reduced rates with easier underwriting processes.
Many policies offer additional features that allow you to tailor your coverage according to your specific needs. For instance, cost of living adjustments allow you to increase benefits over time or return of premium riders allow you to repurchase a portion of previous premium payments. These riders may prove especially useful for self-employed individuals struggling to secure new clients after illness or injury has taken an extended toll on their network, or those relying on regular paychecks as a form of support in maintaining a certain standard of living.
What is Disability Insurance?
When we think of disability coverage, workplace accidents often come to mind as causes. But sickness accounts for most disabilities; therefore, coverage should be essential no matter your profession or industry.
There are two primary types of disability coverage: short-term disability (STD) and long-term disability (LTD). STD policies tend to cover anything between three months to a year while LTD policies often extend up until retirement age if necessary.
Premiums for these policies depend on the type of policy and its terms and conditions, including factors like elimination period (how long until benefits can start); benefit period (for how long benefits will continue); and definition of disability in each plan.
Some policies include an enhancement feature which increases benefits by an annual percentage for an extended period, commonly known as an own-occupation disability policy and ideal for small business owners, self-employed certified professionals and other individuals who rely on nontraditional income such as bonuses and commissions besides straight salaries as a source of income. Unfortunately, these provisions typically only come available with individual disability coverage.
How Do I Get It?
Disability income coverage can usually be obtained either independently or through your employer. A financial professional can assist in comparing coverage options and prices as well as helping determine the most appropriate type and amount of disability income coverage.
Applying for disability insurance typically takes four to six weeks. First, a medical exam resembling a standard physical will need to be scheduled and then pay stubs and tax returns provided to verify your income. You may be asked by your insurer for an attending physician's statement (APS), from your doctor that will either verify or provide more detail on a condition for coverage.
Your short or long-term disability policy must cover you for as many months or years as you deem necessary in the event that you become disabled, with longer duration policies being more costly. Furthermore, you should decide how broad or narrow the definition of disability should be on your policy.
Employers frequently include group disability coverage as part of their benefits packages, with its advantage being affordable or even free coverage; its drawback being potentially limited benefits and loss upon leaving employment.
What are the Benefits?
Even with substantial savings, it can be challenging to pay the daily costs associated with being out of work due to injury or illness for an extended period. Disability insurance provides a guaranteed source of income so you can focus on recovery instead of worrying about paying the bills.
Individual disability coverage may also be available through your employer and offers attractive group rates with an easier underwriting (approval) process than individual policies. Individual policyholders can purchase additional disability coverage through individual policies as supplemental plans to fill any gaps that exist, while own-occupation coverage only qualifies you for benefits if unable to perform your duties consistently and reliably despite any other employment you might do; or they can choose an optional residual or partial disability rider which allows for part-time work with reduced benefits payable - these policies also vary considerably among these features, although group policies offer attractive rates and approval processes than individual policies do.
Dependent upon the policy type you select, benefits can begin anywhere between a few months to over a year and up until your retirement age or Social Security normal retirement age (whichever comes first). The length of the waiting period has an enormous influence over premium costs.
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