What is disability insurance?

One of the most tragic moments is when accidents happen and as a direct result of that, you lose your job or there is a loss of income. Accidents can happen to anyone, anywhere and it can cause paralysis, blindness, hearing impairment, physical disabilities etc. The tough part is not to live with the disability but to live without the income. It can also be caused by prolonged illness. So when something like this happens, what will become of your family? How will they carry on without the income generated by you?

The solution is disability income insurance. The insurance will not remove your disability but it will provide you with a coverage for loss of income. According to a survey, it has been seen that an average worker has a 14% chance of dying by the age of 65 and 21% chance of being disabled for 90 days or more.

There are basically three alternative ways of replacing income and they are through:

Employer-paid disability insurance: This is provided by most of the larger employers and this includes long-term disability coverage and benefits up to 60% of the salary and can be extended in some cases beyond the age of 65.

Social Security disability benefits: This benefit is paid to workers whose disability can last for a time period of 12 months. This is provided only when it is decided that the injury or the disability is so severe that the person concerned will not be able to get regular employment.

Individual disability income insurance policies: This is a part of limited replacement income from workers compensation and it holds true only in certain circumstances like if the injury caused is job-related or work place related.

There are two types of disability insurance, the Short-Term Disability insurance (STD) and Long-Term Disability insurance (LTD). The Short-Term Disability insurance policy (STD) has a waiting period of 0 to 14 days and the benefit period cannot be any longer than two years. On the other hand the Long-Term Disability insurance policy (LTD) has a waiting period ranging from several weeks to several months and the maximum benefit period can range from a few years to life.

The Disability insurance policies come with built in protection features. There are two types of protection feature and it is important to understand what they are. The first feature is called Non-cancelable. Non-cancelable basically means that the policy can’t be canceled by the insurance company on any other grounds except for nonpayment of premiums. The benefit that you can derive is of a zero increase in the premium at renewal of the insurance policy.

The other important protection feature is called guaranteed renewable. In Guaranteed renewable, you have the right to renew the policy with the existing benefits. Unlike the non-cancelable protection policy, in the guaranteed renewable policy the insurance company has the right to increase your premiums for as long as the policy is active. While going for a disability policy, you can also consider options like Additional purchase, Coordination of benefits, Cost of Living adjustment (COLA), return of premium and Residual or partial disability riders.