Your most important resource is not your home, vehicle or your IRA account rather it is your ability to earn money and bring it home. Do you ever hear about a colleague or a friend who got severe health issues and become unable to work for several days’ even months? Without work it may have become difficult for his/her family to make ends meet. Hearing about such incidents is really painful but have you ever consider that life may take a change for you as well and you and your family can face such situations as well.
Such income loss would result in depression, frustration and make you stress a lot. To prepare for such drastic life event that may happen, you can buy the disability insurance. An expert in insurance suggests that every person whose family mainly lives on paycheck needs to have disability insurance.
So, what exactly is the disability insurance?
Disability insurance, as the name shows, provides you some part of your income in case something crucial for example a severe injury or a disease happens to you and you became unable to do work for months or years.
In actual, disability insurance helps the employees in their dark time to get needed health care without any stress or frustration of where the money would come. It do not cover total of your income rather provide a wage replacement method that mostly cover sixty percent of your salary/income. This health compensation is provided to a cap or a maximum monthly payment. Though the sixty percent income may not be ideal for you in crucial time but it is better than having nothing in your hand. Having some money to flow into your home would be really helpful for you and your family.
It is really easy to qualify for this policy when you are younger and healthier but as your age increases, disability insurance premium increases. And if your health is already in difficult state you may find it really hard to get your hands on affordable disability policy.
The best thing about this insurance category is that it just does not cover unexpected accidents. Most people realize disability insurance for diseases like heart attack or cancer and these diseases can happen to anyone in the office.
Types of Disability Insurance
You need to know the different types of disability insurance to make a prudent decision. There are basically two types of this insurance i.e. long-term and short-term disability insurance. They basically perform the same function but there distinction would be explained in the following lines.
Short-term disability Insurance
Short-term disability insurance cover you for the short period of time, it may cover you for few months or one year. You would be able to get your payout in two weeks compared to the long term insurance that take more time to initiate payment. But comparing their costs, short term disability insurance premiums are the same to long term and sometime more expensive.
In short, if your employer is providing you with this insurance then you must take it. Otherwise, if you buy it yourself, it may cost you huge. As an alternative to this, you can create an emergency fund for three to six months that can provide you with flow of money in case of health issues.
Long-term disability insurance
Long term disability insurance covers you from two years till your retirement age or you can expand the policy more as well. Whether you work in the office or on field, you need to have something in side to help you in rainy days.
It is recommended by the experts to get 60 to 70 percent coverage of your income. Also you need to get the coverage amount for five to six years to receive the cash in the times where your emergency fund would not be able to cover it. If you get the policy yourself, you would be able to take it with you wherever you go when you change your job. But it will cost you really cheap if you can but the policy with the help of your employer. You can always talk to the HR department for getting such kinds of facilities.
The only drawback in the long-term disability insurance is the time it would take you to receive your first check after your doctor has confirmed your disability, it is referred as elimination period. Long term disability insurance takes the several months in elimination period because long period disability mostly happens after short period disability.
Disability Insurance Cost
The cost of long or short both disability insurance can be based on one to three percent of your total annual income. So if you earn 40,000 dollars per annum, you monthly premium would be 400 dollars to 120 dollars per month. Your cost would decrease if you get a long-term policy with the longer period of elimination. Try to get your hand on non-cancellable insurance policy that cannot be cancelled by the insurer even your health goes down.
Other thing that may change your monthly premium is your age, do you smoke, how do you earn your money, and how much do you earn. If you earn more, it will cost more to you to keep some part of those earning flowing in rainy days.
Furthermore, as the insurance companies are not known to make things easy for their customers, your cost may be affected by your workplace environment and working condition as well. If you want to gets the policy that covers your job as someone working in dangerous mines then the disability premium would be greater for you as compared to someone working in office environment.
You may already be compensated for such events in the form of workers’ compensation or social security or self-insurance but it is always better to be on your secure side and buy additional coverage with the help of your employer that will decrease your cost.