Disability insurance covers your income when you are unable to work because of an accident or illness.  This insurance plays a critical role in the financial stability of a disabled person and his/her family, pays an insured person an income when that person is unable to work because of an accident or illness.

In spite of the importance of this kind of policy, the Consumer Federation of America and The American Council of Life Insurers report that 82% of people in the United States do not have long-term disability insurance or have inadequate coverage.

In 2005, the National Safety Council reported that every nine seconds, one person sustained a disabling injury at work, and that’s just the injuries that happened at work.  Take a look at the rest of the disabling injury reports:

Motor vehicle                        every 13 seconds

Home                                   every 4 seconds

Off the Job                           every 5 seconds

Non-Motor Vehicle                  every 4 seconds

All Disabling Injuries                every 1 second

What is one of these injuries happened to you?  Are you covered? 

Of all the reported disability claims each year, about 65% are short-term (3-6 months), and about 6% are long-term (a year or more in duration). 

The National Association of Insurance Commissioners says that adults in their thirties are more than three times more likely to become disabled than to die. 

And if you are counting on the government to take care of you if you become disabled, think again!

Social Security benefits are designed to cover those who are disabled, but it takes some time to become qualified to collect these benefits and to do so you must be deemed permanently disabled and considered unable to hold ANY job for at least 12 months before you will even be CONSIDERED.   

Once you are approved for benefits, you will find that Social Security will not support the average lifestyle or pay the bills (if you are lucky, you may get a monthly check for $800.00!)

And it certainly won’t put your kids through college!

You can get disability insurance in one of three ways:

Your Employer – Most states require employers of a certain size to provide short-term disability insurance.  Some larger companies provide long-term coverage as well. 
What you need to review is the terms of the coverage (what percentage of your salary do you get and for how long). 

Short term coverage will often provide 100% of your salary for some period of time and that percentage may decrease over the months. 

Long term coverage may start at 60% of your salary and some policies provide for a decreasing salary as the years pass. 

Others will remain at 60% of your original salary, regardless of the period of long-term disability.

You can see where it might be important to understand that so you can provide your own ‘gap coverage’ to give you more income if and when you are disabled for a long period of time. 

You must also check your employer’s policy restrictions to be sure that the checks you get from your employer during any period of disability are not offset by Social Security or other coverage. 

Otherwise, you may end up with less money than you think you are going to get.  Remember that while employer benefits are typically paid by the employer (with no contribution from the employee) you WILL have to pay taxes on the money you receive in your disability checks.

Some types of jobs also offer worker compensation payments for injuries sustained on the job or for high risk jobs.  If you are disabled in the military, the Department of Veterans Affairs provides some coverage to offset loss of income.

Keep in mind that workers compensation only covers you if you are disabled on the job and many of these policies pay very limited benefits.

Individual Disability Policy -  Even if your employer offers disability coverage, an individual policy is a good way to insure your income against disability.  
 

You can cover about 50% to 70% of income through a private policy, although an insurance company will not insure all of your income. 

You do not have to pay taxes on disability payments you receive through private policies. 

Social Security Benefits – If your disability is expected to last at least 12 months, or you are declared permanently disabled, you can collect social security payments under law. 

It is very hard to qualify for Social Security disability benefits. 

The Social Security Administration says that about 70% of those who apply for benefits are denied. 

If you DO qualify, you must be SO disabled that you are unable to take on ANY job, and it will take some time for these benefits to be approved (five months or longer).

The myth of social security:  If I am disabled, Social Security will take care of me!

Don't count on Social Security to take care of all your needs, even if you ARE approved. 

You will wait months to receive benefits and those benefits will not match your salary.  

When buying your own disability policy, you can consider two types of coverage: 

Ø     Short Term (a waiting period of 14 days and up to two years in benefit coverage), and

Ø     Long Term Disability coverage (a waiting period of weeks or months, depending on the policy, and maximum benefit coverage of several years to lifetime coverage). 

You can buy a more expensive policy that allows you to lock in the premium rate and the benefit amount and renew every year, or you can purchase a policy that allows you to renew, but gives the insurer the right to raise your premiums.

When you talk to an agent about the types of available policies, consider these policy features:

Ø      The option to buy more insurance at a later time should your salary go up as you get older or take on a better job. 

Ø      Cost of living adjustments (COLA) in your disability benefits based on increases in the Consumer Price Index.

Ø      Coordination of benefits to accommodate your salary with all other available benefits figured into the calculation. 

Your individual policy will set a ‘target number’ you will receive with all benefits included, and the insurer will pay you the difference between that target number and all the other disability benefits you are paid.  That way you are guaranteed a certain income.

You should also ask the following questions about your policy to be sure you thoroughly understand your coverage:

a.      What is the definition of ‘disability’ in my policy? 

b.      Does my policy cover partial disability or only TOTAL disability?

c.      Does my policy cover accidents? 

d.      How is my disability verified?

e.      When will my first benefits check arrive?

f.        How much will my benefits check be?  Is there a maximum?

g.      How long can I collect benefits?  Do my benefits decrease over time?

h.      If I am able to work part-time, can I collect partial benefits?

i.        Do I have to keep paying disability insurance premiums when I am disabled?

j.         Can I obtain a partial refund of my premium if I do not submit a disability claim for a certain period of time?