Answering All Your Disability Questions

Wait, all of them? Maybe not all of them, but at least the most important ones. Disability insurance is often overlooked since most employers provide some form of group disability coverage. Unfortunately, most people never take the time to understand how their policies work until they actually need to use it. Here are some important questions to consider when it comes to disability insurance coverage:

Do I Really Need Disability Coverage?

The short answer is yes, unless you are independently wealthy. However, if you go to work and one of the reasons you work is to earn an income, then yes you should have disability insurance coverage. Your income is the main driver of everything you do financially whether that’s paying bills, paying for entertainment or saving for retirement. Losing your ability to earn an income can have devastating financial consequences.

The reality is that no one would think to buy a home without insuring it. Do you know the odds of filing a claim on your home insurance policy? The answer is at the bottom of this post. The odds of a 20-year-old having a disability that lasts for at least one year is slightly more than one in four*. That’s over a 25% chance of something happening that will affect your income.

When Does Coverage Start?

Most short-term disability policies will have an elimination period of 7 days or 14 days. There may be a difference for illnesses or accidents. Long term disability policies will have an elimination period of 90 days.

How Long Does Coverage Last?

Short-term disability policies will cover a disability for up to 13 weeks. After that, there is no coverage. Long term disability plans will cover for different time periods, but most common is to cover a claim up to age 65.

How Much Does It Pay?

Disability policies will cover 60% of your gross income.

Isn’t My Employer Plan Good Enough?

Yes, it’s certainly better than not having coverage which 56% of Americans do not have disability insurance coverage**. Most group long term disability insurance plans have three significant flaws. First, group disability plans have a maximum benefit. If your income is greater than the maximum benefit coverage, your coverage percentage may not be 60%, but closer to 40%. This is a concern for higher income earners.

Second, group disability plans may not cover bonuses or commission. If a large portion of your income is based on commissions or bonuses, please make sure you check to see what type of income is covered under your group disability plan. There may be a large gap in coverage that you’re unaware of.

Finally, group disability plans will have an own occupation definition for two years than an any occupation definition after two years. Basically, own occupation states that if you can’t do your specific job, you will be eligible to receive a benefit from the carrier. Any occupation stats that if you can get a job doing anything else, then you will not be eligible for a benefit. For example, if you were a contractor and you couldn’t use your hands under the own definition, you’d be covered. Under the any occupation definition you wouldn’t because you could get a job as a Walmart greeter.

Key Takeaways:

1)      Review your group policies so that you understand when the coverage starts, how much they cover and how long your covered for

2)      If there are gaps in coverage or you do not get group disability coverage, consider an individual disability policy.  

Answer: 1 in 15 homeowners will file a claim on their homeowners insurance.

*http://disabilitycanhappen.org/disability-statistic/

**https://www.insurancejournal.com/news/national/2011/06/08/201752.htm