Disability insurance is one of those insurance products that you hope you’ll never need. Unfortunately, though, you’re statistically more likely to need this type of insurance before you retire than even life insurance, regardless of what your life insurance agent might tell you. In fact, it’s estimated that as many as 25% of currently working Americans will find themselves permanently disabled in some way before they reach their 67th birthday. Currently, Social Security does pay a small amount to beneficiaries who become permanently disabled, but this is generally nowhere near enough to cover living expenses, particularly in light of what could be astronomical health care bills incurred over a lifetime of inability to work. The Social Security benefit currently stands at about $1,129 per month on average, with a max of about $2500 if you made a good living before you were disabled. Either way, the amount you’ll get isn’t going to cover your living expenses, so don’t count on it!
Private disability insurance is a great stopgap measure that can be used to supplement social security income should you become disabled, and it can come from a variety of sources. Your employer may offer it as an added benefit, or your life insurance company may offer additional disability insurance. In fact, you can even find disability insurance available on the internet from many of the largest insurers in the United States. You might be tempted to think that supplemental disability insurance is just a waste of money, but for the price, there’s hardly another insurance product that is as likely to ensure you’re taken care of if the worst should happen to you.
|How will you keep the lights on without a paycheck?|
First, let’s go over the definition of the term “disability.” Recently, it has gained a lot of status, primarily of the negative sort, in the political realm, with regards to government waste and people seeking to game the system for the wrong reasons. However, there are many, many legitimate reasons that one can, and should, take disability. A disability is defined as anything that prevents you from performing the primary functions of your job for an extended period of time. It covers illnesses of both a physiological and psychological nature, and can be secured in both short-term and long-term statuses. In essence, let’s say that your back is broken, and on the advice of doctors, you will not be able to continue in your current line of work. You may not be able to ever work in a capacity such as you were in again. Constant physical rehabilitation may be necessary for years just to get you to the point of walking again. This covers the basics.
Short-term disability is a set amount of time during which you cannot perform your job for a length not generally exceeding two years, but which may only cover you for a few weeks. You are probably most familiar with short-term disability from the Aflac duck commercials. While they are certainly the most visible short-term disability provider, there are a number of others as well. In many cases, pregnancy is covered under short-term disability coverage for things such as paying bills while you can’t work due to having a baby on the way!
Long-term disability is another animal all together, but it assists you in the same way. Unlike short-term disability, though, long-term coverage does not limit you to a short time frame. The maximum amount paid is instead determined by a fixed dollar amount stated in the policy (which generally is about 60% of your income,) or until the death of the person insured.
So, that, in a nutshell, is the basics of how disability insurance works. Stay tuned to this blog later as we go over some of the different types of disability insurance, including a special type of coverage for businesspeople!