Disability Insurance 101
Today, I am presenting you with a guest article on the ins and outs of disability insurance by JC Matthews of Simply Insurance. Disability insurance is a very important form of financial protection, but is so often misunderstood and therefore neglected, even by financial professionals. That's why I wanted to bring in an expert to help educate us (myself included) on this form of coverage. JC is co-founder of Simply Insurance and is well-versed in all scopes of insurance protection. My thanks in advance to JC for taking time out to make us more informed financial consumers!
Have you noticed that when it comes to Disability Insurance, the information is scarce and sometimes hard to understand?
Well, here’s the thing...
It’s actually easy to understand, and this quick introduction will prepare you for any conversation with an agent. Today you will learn the basics of Disability Insurance, why you need it, and how to take action on obtaining it.
What is Disability Insurance
Disability insurance is insurance that covers you in the event you become disabled for a specified period. I like to think of it as paycheck insurance; we have insurance for everything else, why not have it for our paycheck? If you rely on your job or small business to cover your everyday living expenses and monthly bills, then you should have disability insurance.
Disability Insurance is NOT accidental death or accidental death and dismemberment insurance. I have found a few of my customers in the past that assumed they were both the same product.
Types of Disability Insurance
Just like life insurance, there are different types of disability insurance products that you need to be aware of:
Short Term Disability Insurance
This kind of Disability Insurance covers you for a short period. Once you have reached your elimination period, the average policy will cover you for up to two years with payments being sent on a weekly basis.
Elimination periods for short-term disability policies usually range from 0 to 15 days.
Long Term Disability Insurance
This type of Disability Insurance covers you for a more extended period. Once you have reached your elimination period, the average policy will cover you from 5 years up to age 65.
Elimination periods for long-term disability policies usually range from 30 to 720 days. However, 90 days is the average.
Lump Sum Disability Insurance
This type of Disability Insurance will cover you with a lump sum of coverage. Once you have reached your elimination period, the policy is usually the amount of your annual income. If you make $50,000/year, then that would be your lump sum benefit.
Lump Sum Disability policies will pay out if it is determined you are totally disabled.
How Disability Insurance Works
The way disability insurance works is rather simple. For you to file a claim, you must first be disabled for a specific amount of time, which is known as the elimination period. The elimination period is going to be different for each type of policy, in some cases, you can pay a higher premium to make the elimination period shorter.
As shown above, these periods range in time, and it’s imperative that you understand how long yours will last before funds kick in. If you have a 30 day period, that means you still have to cover all of your bills during that time until you have wholly waited out your elimination period.
Who Needs Disability Insurance
If you have to work for a living and are receiving your income from an employer or as a small business owner, then you need disability insurance. It’s easy to believe that if you don’t work a dangerous or hazardous job that you don’t need disability insurance. However, let me share one small statistic with you, according to Disability Can Happen, over 90% of disabilities come from illnesses, accidents only make up 10%.
Yes: 90% of disabilities come from an illness, like cancer, diabetes or heart disease.
This means that “I work from home” or “I have an office job” can no longer be your excuse for not having disability insurance.
What Type of Disability Insurance Do You Need
To determine the type of disability insurance that you may need, it’s first import to figure out a couple of things:
- What are your monthly expenses are and how long can you survive if you aren’t able to work?
- Are you the primary breadwinner in your household?
- How much can you afford to spend on coverage?
- Does your employer offer any additional benefits?
- How much do you have in savings?
It’s important to understand what your life would look like if the money stopped coming in. Are you only in need of short-term funds until something else kicks in, or will you need to have coverage payout over a more extended period? The best way to determine this is by taking inventory of some of those above questions.
How to Take Action
It all comes down to ensuring that some money is coming into your home even when you can’t work. Disability Insurance is probably the most underutilized type of coverage; however, it is one of the most vital to have.
If you need disability insurance, you can reach out to your local agent or me for a few quotes and get covered.
There is no reason to wait; your paycheck does need to be insured.
If you would like to learn more, or explore what a disability policy might look like for you, JC can be reached by email at email@example.com or by phone at (800) 340-4414 ext 101.