If you can't work due to disability, you'll need temporary income through disability insurance. Here's how to tell if you have the right disability insurance.
Keyword(s): disability insurance
If you can't work due to disability, you'll need temporary income through disability insurance.
But how do you know which type of disability insurance -- and how much -- is right for you?
Understanding short-term disability insurance
Short-term disability insurance is just that: designed to cover the short-term.
There is usually a 14-day waiting period and then you get coverage, which can last from a couple of months to a full year.
Typically, short-term disability insurance covers:
- A lengthy illness
- Disabling injuries
Understanding long-term disability insurance
Long-term disability benefits take longer to process (around 90 days) but cover you for longer (often over a year or more).
Some issues covered by long-term insurance include:
- Musculoskeletal/connective tissue disorders (back pain, osteoarthritis)
- Heart attacks and coronary artery disease
- Mental disorder
Elements of disability insurance plans
There are two different types of disability insurance, essentially.
"Any occupation policy" covers the inability to work in any job you held before getting the disability.
"Own occupation policy" covers your inability to perform the job you trained for. To get your benefits, you must be actively employed in your occupation at the time of accident.
Coverage length: A policy that might help you get to retirement age is the best safety net, but will also be the most expensive.
Benefits and taxes: If you pay for the policy, the benefits from it are non-taxable. In general, though, the higher the tax bracket you were previously in, the higher the cost of the disability insurance.
Guaranteed renewable: This means that, as long as you pay your premiums, you can keep your plan. It protects against companies taking action against you if you get diagnosed with something akin to a heart condition.
Beware of group disability insurance
Some want to consider group plans.
While group disability insurance has some merits, it also has some significant cons.
It typically will cap benefits somewhere between 40% and 60% -- but of your salary, not your income. That can lead to lower benefits.
Additionally, many group plans require you to be totally disabled to the point it would completely impossible to be employed.
The bottom line on disability insurance
Most disability insurance programs are designed to protect you in the event of a catastrophe, but not provide enough for you to give you an incentive to stop working.
When considering and reaching any disability insurance, you absolutely need to begin with a hold on your own financials. That will be the baseline for everything else.
How much do you earn?
How much goes out?
Once those numbers are clear, you can investigate various disability insurance premiums and features.
Estimating disability insurance
There are several different approaches and you could manage it yourself within Excel, but it's better to work with professionals with some experience and background in what needs to be calculated.
That's where we come in!
If you need help comparing various disability insurance policies, don't hesitate to contact us. We'd love to help you with any calculations, numbers, estimates, or questions you may have.