What Is Disability Insurance and Do I Need It?

The world of insurance has so many types to choose from that most people find it overwhelming to know how they all work.  Unfortunately disability insurance is high on that list of confusion and it also happens to be high on the necessity list, despite what many think. So what is disability insurance? How does disability insurance work? Who is it for? What does it cost? And where can you get the best disability insurance?

We’ve taken up the challenge and gathered all the information you need to know about this crucial insurance.

What Is Disability Insurance?

Disability insurance (also called income protection insurance) is a type of insurance that provides earned income when a person can’t complete the main functions of their work. 

It’s generally designed as a buffer against the loss of job income due to injury or disability. When you’re unable to work and you aren’t receiving a regular paycheck disability insurance helps you and your loved ones maintain a lifestyle you’re used to as best as possible.  

So, How Does Disability Insurance Work?

Beyond its’ basic definition disability insurance has its nitty-gritty points.

Once you have decided on your policy selection, you’ll make a monthly payment (also called a premium) to activate your coverage. 

A common misconception of disability insurance is that it will replace your income 100%; policies like that are few and far between. You will most likely receive coverage that offers between 40%-80% income replacement. 

Since you’re paying your premiums with after-tax dollars, your benefits are tax-free. Keep in mind that you can’t deduct premiums paid for individual disability income insurance as a medical expense.

Who Needs Disability Insurance?

The Social Security Administration notes that for 20-year-olds, “ more than 1-in-4 of them become disabled before reaching retirement age.” 

While many people may not want to discuss disability insurance, it’s important to remember that health issues can happen to anyone, at any age. It’s easy to think we are invincible in our youth but planning ahead with disability insurance is a smart move from the start.

Once you are of working age, disability insurance is something to consider especially if you have financial responsibilities and a loss of income would be problematic for your payments.

Types of Disability Insurance

The two main types to explore are short term disability insurance and long term disability insurance. 

Short-term disability insurance (STDI) replaces a portion of your paycheck for a shorter period of time. 

Some points to remember:

• It often covers between 3 months up to a year
• Most people receive short term disability insurance from their employer
• You may have a short waiting period (think 2 weeks or so) after you become disabled before your payouts begin
• Long term disability (LTD) insurance is for disabilities that require extensively long periods of time away from work

Keep in mind:

• It often covers one year up to when the disability ends. If the disability continues to persist then benefits end after a certain number of years or at retirement age.
• LTD is less commonly offered by employers and the coverage usually isn’t enough; most people take out supplemental LTD policies if the coverage isn’t enough from their employer or they take out individual LTD policies instead of going through their employer all together.
• It can take up to 90 days for the benefits waiting period to be lifted  

An important point to remember: long term disability insurance begins once your elimination period ends. This is usually between 30 and 90 days and usually the amount of time your short term disability insurance wraps up.

Also, there are two types of LTD insurance you can get: own occupation disability insurance and any occupation disability insurance.

Own occupation disability insurance is where you’re unable to work your current job due to your disability.

It’s broken down into three subcategories: 

• True own occupation–you’re not working your current job but you’re able to work at a different job and still receive benefits.
• Transitional own occupation–you’re not working your current job but you’re working at another job. In addition the benefits you receive make up the difference between your new and old salary amounts.
• Own occupation, not engaged- you’re not working your current job or another job in order for you to receive benefits.

Any occupation disability insurance is when you are unable to work any type of job that you’re reasonably suited to do because of your disability. These are harder to prove and therefore harder to receive a benefit from but less expensive overall.

Beyond STDI and LTD, you can also look into other types of disability insurance. This includes mortgage disability insurance, state disability insurance, social security disability insurance and business overhead expense disability insurance to name a few.

Where To Find Disability Insurance

When it comes to discovering the best disability insurance and the best long-term disability insurance, Policygenius is the only stop you’ll need for your research.

A designated hot spot for finding the right coverage for your insurance needs, Policygenius helps you learn all about the ins and outs of different types of insurances including disability insurance.

What makes them stand out, in particular, is they offer quick and painless online inquiries from many well-recognized insurance companies. With no long applications or wait times, you get a range of well-priced options. From there you can compare in a matter of minutes and choose the best policy for you.

Costs For Disability Insurance

On average, long term disability policies are between 1% and 3% of your annual income. There are several things that factor into your disability insurance’s premium cost.

The most common categories that affect insurance premiums are:

• Age
• Gender
• Smoker or non-smoker
• Health history
• Occupation
• Current income
• The company’s disability definition
• The company’s waiting period time
• The length of the benefits
• Any extra features you add

A few questions to consider when you’re starting on your disability insurance research are:

1. What income replacement amount would I need to still support my lifestyle if I became disabled?
2. How long could I wait for my benefits to kick in?
3. How long will my benefits be available for?
4. What does the definition of “disabled” mean for this company?
5. What are the guidelines around my policy cancellation, policy changing or my premiums increasing?

If you’re worried about your premium being too high, shopping around using sites like Policygenius. 

There are a few things you can also do to make coverage more affordable. Consider:

• Asking for less coverage
• Removing any unnecessary riders
• Purchasing a group disability insurance policy
• Taking care of your health each day 

While thinking ahead about negative outcomes isn’t a fun thing to do, it is necessary to plan for your financial future. Your most valuable asset is you as well as your ability to make a living and that requires the right type of disability insurance protection. 

Take the time to check out Policygenius for yourself and get started on adding or ensuring you have the right coverage for your disability insurance policy today.

What are your thoughts on disability insurance? Do you have it? What helpful points can you add from your own disability insurance research?