Hello, and welcome.
You must have seen this article because you were searching for info about disability insurance.
Well, no cause for alarm. I'm happy to break it to you that you're in the best place you can ever be and I guarantee you 100% understanding of the whole concept of disability insurance.
On this article, I'll be brushing upon the main scope of disability insurance, which includes;
• What is Disability Insurance?
• Types Of Disability Insurance
• How The Disability Insurance Plan Works
• Real-Life Example Of Disability Insurance
• How Much Disability Insurance Can Be Bought
• The Limits To Disability Insurance Coverage
If you also care to read about other insurance policies like Life insurance, property insurance, health insurance, and more, kindly click on their titles, or go through this website.
Now let's get into it, shall we?
WHAT IS DISABILITY INSURANCE?
Imagine that someone was all healthy and fit, and used to go to work everyday, but suddenly, he or she had an accident, or an illness that eventually took away one functional part of his or her body. Sad!
So now, the person is disabled, and most likely would not be employed or would be urged to resign from his or her former workplace that requires the use of that body part that is no longer functioning well.
What an unfortunate situation.
Well, it's not totally unfortunate, because Disability Insurance is an insurance policy plan that pays some of an individual's income most especially when he or she is disabled from an accident or unforeseen illness. So, yay! If the person were insured, it's a cool compensation rather than getting to sit around doing nothing and not earning some cash!
So if you ask what the main purpose of disability insurance is, it's simply an insurance plan put in place to provide benefits which will replace lost income in the case of the insured individual being unable to work due to an accident or illness.
Disability insurance, like some other forms of insurance, also differs considering the country you live in.
For example, In the United States, persons can obtain the disability insurance plan straight from the government by following through the Social Security System. It doesn't mean they can't purchase the plan from private insurers, as they can do that too.
In Canada, if there's a situation whereby the insured can not work temporarily due to an illness or accident, the disability insurance replaces between 60% and 85% of the insured's regular income up to a maximum amount and for a specific period of time.
In California, depending on the insured's income, he or she can receive about 60% to 70% of actual wages earned 5 to 18 months prior to the start date of his or her claim. He or she can be paid benefits for a maximum of 52 weeks.
TYPES OF DISABILITY INSURANCE
There are two main types of disability insurance. These are known as;
• Short-term disability (Which is sometimes shortened to be STD)
and
• Long-term disability (Shortened to be LTD).
I think the two main types of disability insurance are self-explanatory.
But if you don't have an idea, short term disability offers benefits for a short term. Typically three to six months, while long term disability insurance is for a much longer term. A period of over six months.
HOW THE DISABILITY INSURANCE PLAN WORKS
Most of the time, disability insurance plan is capable of protecting the insured against a given loss.
It's just like how a property insurance plan compensates and reimburses the insured in the case of a stolen or a damaged property. Only difference is that in the case of a disability insurance, the insured is compensated due to the income he or she lost because of a disability.
For example, if a worker earned $40,000 per year before he or she got disabled, and if the disability makes it difficult for he or she to continue working, the disability insurance would reimburse he or she a portion of his or her lost income as long as he or she meets up with the requirements and is qualified.
So basically, disability insurance effectively covers the opportunity cost of the now disabled individual.
There are many conditions in practice, that a disability insurance policyholder must meet up with to get these benefits.
Regarding the United States social security system, this is particularly true.
I mentioned earlier that individuals in the U.S can obtain the insurance plan from the government, but the truth is, to qualify for the government-sponsored disability insurance, the applicants must prove that their condition is so severe that it absolutely prevents them from taking part in any type of benefitting work at all.
The Social Security System also demands that the applicants demonstrate that their disability is expected to last for 12 months at least, or is expected to end in the case of their death.
Meanwhile, in private disability insurance plans, the applicant is only required to show that they can no longer continue in the same line of work as they once used to.
Just like other forms of insurance, disability insurance plans tend to carry more expensive premiums when their terms and conditions are more favorable to the insured. More comfort, more cash!
Also, plans with less favourable conditions will definitely carry less premiums.
Apart from these, other factors that will also affect the premiums in disability insurance plans include the length of the elimination period, which is the total length of time the insured must wait prior to being disabled before they can begin to receive benefits; the benefit period, which is the length of the period of time in which the benefits continue to be paid to the insured.
The strictness of the definition of ‘disability’ under the policy also affects the premiums.
REAL-LIFE EXAMPLE OF DISABILITY INSURANCE
Roughly estimated, disability insurance costs about 2% of the insured's person's annual income. But the actual amount will depend on the on-policy features such as the one I mentioned earlier and the Insurance carrier.
There's also diversity in choices, as different individuals will have their own personalised preferences in terms of how much premium they are willing to pay in exchange for lesser or greater protections from potential disability.
HOW MUCH DISABILITY INSURANCE CAN BE BOUGHT
If you have been thinking of how much disability insurance plan you can buy, a good way to figure it out is by observing your income percentage and decide how much coverage you need. It is advisable to obtain enough coverage to maintain you and your family's current living standard, more of getting it up to the limits of what is offered by the insurer.
THE LIMITS TO DISABILITY INSURANCE COVERAGE
In the course of limiting the number of fraudulent disability claims, insurers refuse to replace 100% of the income that is lost due to a disability. Currently, most group disability insurance policies will only cover up to 60 percent of the insured's earned income. In the case of receiving a disability income from a group policy under the insured's employer, the insured is required to pay income tax on the benefits.
