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What Is Disability Insurance & Who Might Need It?

Stephanie Banks - November 24, 2021


What is Disability Insurance

Disability Insurance is a policy that provides partial pre-tax income to people who can no longer work due to a disability. It protects policy holders from financial losses if an accident or sickness causes them to become disabled.


It comes in short-term or long-term coverage. As with other types of insurance, premiums are determined based on age, health and in this instance, occupation and income. When used, a disability policy pays out on a monthly basis.


Disability Insurance is intended to replace between 45-65% of your gross income. It is meant to help maintain your standard of living. It is important to note that disability insurance policies are in addition to any Social Security benefits you may receive.


Short-term policies help you immediately after an accident. These are usually the type your employer might offer.


Long-term policies are designed to provide financial protection for disabilities that can last years.


As with any type of insurance policy, it’s always a good idea to get one that isn’t through your job. Policies you get through work aren’t always portable, so if for any reason you are no longer with the company, you might also lose the coverage they provided for you.


Who Might Need It?

If you depend on the income you receive through work to pay your monthly expenses, then it’s a smart idea for you to get a disability insurance policy for yourself.


There are two different definitions that disability insurance companies use when referring to qualifying disabilities. It is important for your own clarification to ask which definition the company you go with uses.

1. Own occupation: a person is considered disabled if they are unable to perform the occupation they had prior to the disability.

2. Any occupation: a person is considered disabled if they are unable to perform any job at all.


Some important facts to keep in mind:

· Your disability DOESN’T have to be permanent to qualify

· Benefits pay out monthly for a certain amount of time, which you pick when applying for your policy

· Each policy has an elimination period, or waiting period that you must go through before you start to receive monthly benefit payments.

· Benefits from private disability insurance plans are usually tax-free

· Benefits from an employer-sponsored plan are more often not tax-free

· Disability Insurance covers you regardless of whether you were at work or not, unlike workers’ compensation. Most disabilities occur outside of work

· Plans purchased outside of work usually offer more coverage and are tied to you, not the company

· Long-term plans are easier to qualify for, pay out longer, and provide bigger payouts than Social Security Disability Insurance






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