The Forgotten Insurance: Disability Insurance

You have taken steps to insure your valuable assets such as your car, your home and your life, but do you have insurance on your ability to work? This type of insurance is called Disability Insurance, which is insurance that provides financial benefits to a policyholder in the event of sickness or injury that inhibits the ability to work.

The probability of disability at most ages before retirement is greater than the probability of death. Ultimately, inadequate coverage of living expenses is a serious issue and a disability, such as being confined to a bed, can be economically more severe than actual death. Thus, disability insurance is one of the most important insurance products to have, as many people derive their income from working. However, most people do not acquire it or do not even know it exists. If you become seriously ill or injured and are no longer able to work, disability insurance can prevent you from suffering financial pain as well.

A good Disability Insurance policy is long-term disability insurance where it pays a portion of your salary; unlike other illness-related insurance that offers only a lump sum. Some plans will cover just a percentage of your salary, while others will factor in payments based on total income, including commissions and bonuses. A good policy typically covers at least fifty percent to seventy-five percent of your salary before becoming disabled. Benefits typically last for a set number of years or until you reach retirement age. Before purchasing any disability insurance, one should collect and consider three (3) important pieces of information:

  1. Whether there is a waiting period before income kicks in
  2. Whether the policy covers short and long term disabilities
  3. Whether the policy covers disabilities resulting from accidents or illnesses

As you consider the need and importance of disability income insurance, consider the financial impact of lost income, other disability income sources you have available and what types of coverage and terms to seek for your policy. Most people who do acquire disability insurance usually have it as a rider on their life insurance policy or through their company’s group insurance plan. However, this should be scrutinized as the benefit may be insufficient to cover costs or the clauses of the policy may significantly limit the opportunity to make claims.

There are other important points you should be aware of before purchasing disability insurance such as, verifying the policy’s definition of a disability, as this can differ from one company to another. One should also look for a plan that will provide benefits if one can no longer perform their current job, as some plans will prevent one from receiving benefits if they are still able to do a comparable job. Also, there may be ceilings on payments for certain conditions, such as mental-health illnesses and some illnesses associated with pregnancy are not covered. In addition, you will need to watch out for clauses that exclude pre-existing medical conditions or dangerous hobbies.

Disability insurance ensures that an individual and his family can maintain long-term financial stability in the event the insured becomes temporarily or permanently disabled. Unlikely events can occur at any given time, and disability insurance policies provide financial coverage to the insured during the disability period. Therefore, disability insurance protects an individual’s earning ability. Even the most systematic and aggressive savings program can be drained if you are unable to work for a year or more.

You can speak to a Financial Advisor at the UTC to develop a comprehensive insurance plan suitable for you.