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Disability Insurance

What is Disability Insurance and is it Worth It?

Disability Insurance protects a significant portion of your income should you become unable to perform your job after an injury or disabling event.

Your continued ability to maintain a steady income is essential to all of your future goals. Should you suffer an injury or illness that prevents you from performing your job for an extended period of time, the drain on your finances could be catastrophic. Disability insurance pays you a monthly income while you are unable to work. This allows you to make your mortgage payments, feed your family, and keep the lights on while you recover. There are different types of disability insurance policies, and it is a policy that can be tailored to your unique needs.

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Why would I need disability insurance if I have worker’s compensation?

Workman’s compensation is limited to injuries sustained on the job only. This means that a disabling injury that happens during the rest of your life is not covered. Disability insurance fills that coverage gap and it couldn’t be more important. Injuries are common.

1 in 4 workers will require time away from work.

According to the Social Security Agency, 1 in 4 working adults will be unable to work for at least 90 days due to a disability at some point in their careers. This is a remarkable 41 million people in the United States. With odds like these, protecting your income should be part of any sound financial strategy.

How much does disability insurance cost and is it worth it?

Both short and long-term disability insurance costs between 1% and 3% of your income. For example, if you were making $70,000 dollars annually, you could expect to pay between $700 and $2,100 annually in premiums for disability insurance. This comes out to monthly premiums between $60 and $175 per month, respectively. There are many factors that go into the cost of a disability policy such as:

Benefit Length

The benefit length refers to the amount of time after you become disabled that the policy will pay you a monthly cash benefit. This can range from a few months for a short-term disability policy, to 20 years or more for a long-term disability policy.

Age and Gender

Women typically receive more favorable monthly premiums than men. As with other types of insurance, the older you are, the more expensive your monthly premiums will be.

Type of Occupation

If you work in a dangerous setting your premiums will be higher than if you worked in a more conservative setting. If you are out on an oil rig, you can expect to pay more for disability insurance than if you worked in an office.

Your Health

People with a history of disabling conditions such as back problems, arthritis, and others will pay higher premiums than a healthier person.

Waiting Period

The waiting period (also known as the elimination period) refers to the amount of time before the policy begins paying out benefits. The longer the elimination period is, the less expensive the policy will be. For example, if you become disabled and your policy has a 60 day elimination period, your payments will begin 60 days after the disability began.

What is the difference between short-term or long-term disability insurance?

Short-term Disability Insurance

Short-term disability is designed to cover 60% to 80% of your income for a period of less than a year. Typically, these policies cover you for a handful of months or until you are back on your feet and able to work again. Short-term disability can be quite expensive when purchased as an individual. Employer-backed short-term policies offer a better value.

Long-term Disability Insurance

Long-term disability insurance is designed to cover 50% to 67% of your income for a longer period of time. A long-term disability policy could see that you are covered from now until retirement. Even though long-term policies are similar in cost to short-term policies, the decrease in replaced income helps equalize the two in terms of price.

The difference between own-occupation and any-occupation

Long-term disability policies offer a choice between whether to have an own-occupation or any-occupation benefit structure. Let’s look at the difference between them:

Own Occupation:

With an own-occupation policy, you will receive benefits if you become disabled and cannot perform the tasks necessary at your current occupation. For instance, if you are an auto-mechanic and you injure your hands, you would qualify to begin receiving your benefits. Different insurers have slightly different policy prescriptions and some offer partial benefit payments if you are able to work part-time with your injury.

Any Occupation:

Any-occupation policies do not pay benefits unless you are unable to perform any job. This generally implies that you are very disabled and in addition to not being able to perform your normal occupation, you would also be unable to perform a different job, even one that requires less mobility. Any-occupation policies are less expensive than own-occupation policies because there is a higher threshold required to become eligible for benefits.

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LCQ wants to help you protect your greatest asset. We are happy to answer any questions you might have about how the right disability insurance policy can help provide peace of mind for you and your family. For additional information, don’t hesitate to contact us.