What is Disability Insurance?

Disability Insurance is a method of protecting both you and your family in the case of an injury or illness that prevents the main provider from working. When someone is healthy and able to work, there is an assumption that, in the future, he or she will be able to make large investments such as a home, a child’s tuition, a car, and a retirement fund. These future plans all rely on one thing: your ability to make money now and in the years to come. When this ability is taken from you due to illness or injury, disability insurance preserves the possibility of these goals.

In addition to new medical expenses, one’s income is also reduced or even terminated at the onset of an illness. If your family does not believe it could maintain financial stability, pay its mortgage, or pay off expenses on your spouse’s income alone, then disability insurance should be seriously considered. This type of insurance enables you and your family to maintain their everyday lifestyle even while you are out of work.

Studies show that about 30% of Americans will be out of work for 3 months or longer as a result of an injury or illness. Despite this high percentage, people hardly ever think to insure their income along with their cars, homes, and lives. According to a study done at Harvard, more than 50% of personal foreclosures and bankruptcies are the result of a disability that affects ones job. All this being said, can you afford not to get disability insurance? Due to high rates and even higher consequences, disability insurance is a must for anyone who provides a source of income for themselves or their family.

Who benefits from Disability Insurance?

Anyone with a job can benefit from disability insurance to protect his or her future income in the case of illness or injury. The four most common causes for disability claims have remained the same for the past three years and are as follows: diseases in the musculoskeletal system and connective tissues (28.7%), nervous system and sense organ diseases (15.2%), circulatory system diseases (12.4%) and cancer (9.1%). Injuries account for about 10% of all existing claims. Regardless of your career or position, your age or your health, everyone is at risk for an unexpected injury or illness. To protect your paycheck and your finances, consider disability insurance today.

Group v. Individual Policies

Of all the sources of disability insurance in the United States, employers are the largest providers. Most of these employers, especially those of large corporations, choose to provide their employees with group insurance in the form of short or long-term coverage. Short-term group coverage (STD) will replace a large portion of your income for about three months in the case of disability. Long-term coverage (LTD) on the other hand will pay a smaller percentage of your income during illness or injury (about 40-60%) but for a longer period of time. Purchasing disability coverage through the workplace is an option for many employees and can make it easier to qualify for insurance.

Individual disability coverage differs from group coverage in that it is purchased on its own by the individual and does not tie him or her to one career. Individual insurance is transferable during job changes so that one’s salary is not left unprotected during transitional times. Most individual coverage policies will cover about 40-65% of your salary before the accident or onset and can received free of income tax.

What will it look like?

In order to figure out what your disability insurance will look like, it is important to figure out what your life would look like without it in the case of an emergency. Your ability to work and bring in a paycheck is not the only thing at risk; lost income can also affect your savings, your home, your retirement funds, and more. Once you can look at coverage this way, there is a simple way to estimate what your insurance plan will look like.

By adding up your monthly living expenses and comparing them against income sources other than your job (think savings, social security, etc.), you can determine how much additional income you will need through disability coverage. If you figure that you will still need more income to cover living and medical expenses, additional insurance may be purchased individually or through your employer.

Professional Disability Insurance

Here at The Lyons Group, we deal with a wide variety of professions to provide them with the income protection they need. We understand the individual demands and lifestyles of physicians, lawyers, CEOs, and other professionals and tailor our plans to meet these needs. With Disability Insurance you can look ahead at the future with faith and security knowing that your income is protected no matter what may come your way.

 


 

Group vs Individual Disability

Group Disability Insurance can be a wonderful benefit if provided by your employer because it comes at no cost to you. Additionally, there are no screening processes meaning that everyone will qualify to receive benefits. These group coverage policies typically cover about 60% of one’s gross income. The downside of group coverage is that the benefits you receive are taxable and in the case of a job change, the coverage is not transferable.

How much is enough?

In order to determine whether or not you need additional disability insurance coverage on top of what your company provides, you should look at your current expenses to assess supplementary need. By adding up your monthly living expenses and comparing them against income sources other than your job (think savings, social security, etc.), you can determine how much additional income you will need through disability coverage. If your company’s plan does not provide enough to cover your expenses then additional coverage may be necessary.

Short Term vs. Long Term

The ideal coverage would be a combination of the benefits from both short-term and long-term coverage. Due to the fact that savings and other sources of income can often keep you stable for a couple of months while out of work, if you must choose between the two coverage plans, long-term is more often the better choice. The best way to figure out which coverage plan is best for you is to determine how long your savings could keep you going without your income. If this length of time is longer than 3-6 months then long-term coverage will most likely be the better plan for you.

Individual Insurance

In the case that your employer does not provide group disability insurance coverage, individual coverage is a great alternative option. In order to purchase individual coverage, you must go through a qualified insurance professional and meet the requirements for coverage. Individual insurance has many benefits including job transferability, increased options for carriers and coverage raises, and more. In addition to buying an individual plan for when your employer does not offer insurance, individual coverage can also supplement your group plan benefits for when they do. If you find that the plan your employer provides will not meet your needs in the event of an emergency, an individual plan can help to supply the additional needed funds.

Health Policy

As an individual purchasing insurance, the carrier has the right to decline you coverage based on your health status. In a sense, insurance agencies are somewhat exclusive on who they “allow in,” but this means the company is better able to accommodate and meet the needs of its clients.

Portable Policy

When you buy individual coverage, it is yours and it is transferable. That means you own the insurance and that if you change companies or move, your income is protected no matter what.

Non-Cancelable Policy

Two additional benefits of individual insurance are that if purchased at a young age you can get a lower premium and since it is non-cancelable, your premium will stay low. Once you buy your coverage, your company cannot cancel it or change your premiums with changing circumstance. The coverage is yours, and the only one who can cancel it, assuming you pay your premiums on time, is you.

Tax-Free Benefits

Purchasing your insurance plan with after-tax dollars usually results in benefits free from income taxes.

Protects Insurability

In the case of a decline in health, with an individual plan you can increase your policy in the future to protect income. That way, even if you change jobs or leave your employer, you will not lose your benefits.

Group Disability Insurance

Many employers choose to offer group disability insurance because of its appeal to employees and because it is tax deductible. This is a great option for employees because it does not cost and often needs no proof of insurability. It can be offered in the form of both short and long-term plans and will provide employees with a percentage of their monthly salary in the case of injury or illness.

Short-Term

Short-term coverage will provide benefits to employees who are out of work due to an injury, illness, pregnancy, or other disability. This coverage will provide benefits of a larger percentage of salary but for a shorter amount of time, usually about 3-6 months.

Long-Term

Long-term coverage will cover a smaller percentage of one’s salary but over a longer period of time when someone is unable to work. This amount usually runs anywhere from 50% to 60% of one’s base salary and covers income from time off after one’s short-term coverage ends.

Drawbacks

  • If you change jobs, your coverage is not transferable (it does not come with you).
  • Your employer can cancel coverage at any time.
  • Most policies may require you to be totally disabled in order to receive benefits.
  • If your employer is the one paying the premiums, then the benefits you receive can be taxed, thus reducing the amount of funds you receive.
  • If your income is higher than most, you may not receive actual percentages of income due to a benefit cap.

Professional Association Insurance

Oftentimes, your employer will allow you to purchase disability insurance in the form of a group plan through the professional association. In this type of coverage, there are fewer health requirements, and premiums are based on your age and income. This type of association insurance is comparable to group insurance, but it often has a higher “standard” of disability to receive benefits and has a cap on the amount given. If you need a lot of coverage but do not have a lot of money to put forth at first, this may be a good form of coverage for you.

Unlike individual insurance, however, this type of insurance cannot transfer with you as you change jobs and can be dropped at the employer’s will. In contrast, individual insurance is transferable and non-cancelable unless you discontinue paying your premiums. If you choose a group coverage plan, it would be a wise decision to consider supplementing it with an individual plan as well. This way, even if you change jobs or your employer decides to stop coverage, you are protected with a plan that meets your needs.

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