What is Disability Insurance?
Disability insurance could be more properly termed “income insurance”. It is coverage that provides a monthly cash benefit when you can’t work because of a covered injury or illness. It should not be confused with “workers compensation” which is required insurance for those injured on the job. If you injure yourself on the job you are not usually eligible for a disability claim as the injury is already covered by workers comp.
Receiving disability insurance benefits can help safeguard your way of life in the event your regular paycheck stops because you can’t work. It helps to avoid the problems created when your mortgage payment and other bills would otherwise not be paid because you were not bringing home a paycheck. Most insurers consider older workers over age 65 to be too high a risk and do not offer coverage for that age group. The cost is lower for younger workers because they are considered less injury and illness prone.
Disability insurance policies come with a wide array of options such as the following:
Automatic Increase Option
This option increases the insured’s monthly benefit annually for a specified number of years. The premium also goes up each year because of the additional coverage. Selecting this option helps increase the insured’s benefits along with inflation without having to remember to do it every year. This option would cost the insured a higher premium expense than a plan with static coverage.
This identifies the maximum number of months during which the insured is eligible to collect benefits on a disability insurance claim. The benefit period starts after the “elimination period” has been completed. The elimination period is that period after you are sick or injured until you receive payments from your disability coverage. Benefits continue until you return to your job or the benefit period has been exceeded.
A policy is generally considered short term if the benefit period is 90-180 days. Long term policies pay benefits for two years or more or even until age 65 or for life.
The average duration of a disability lasting longer than 90 days is less than 5 years across all age groups. Accordingly, a popular option is to receive benefits for 5 years. Depending on your situation, upgrading a policy from 5 years coverage to coverage until 65 or for life may not involve a significant jump in premium.