Disability InsuranceDisability Insurance

Definition

• Disability Insurance is a type of policy, which provides income benefits to the insured if he or she becomes ill or is injured and can no longer work.

Types of Disability Insurance

• Short-Term Disability (STD): has a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years. It is often included as part of an employee benefits package.

• Long-Term Disability (LTD): has a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life. It is provided with coverage equal to sixty percent of the gross salary when combined with social security and other benefits.

Coverage

• Some plans will cover you when you’re unable to work in your own occupation and some plans will cover you when you’re unable to work in any occupation for which you’re reasonably suited based on your training or experience.

• Most plans will not cover you if you are working while collecting benefits. Some policies will pay a portion of your monthly benefit if you lost part of your income due to disability.

• Many plans will not cover disabilities caused by drug abuse, suicide attempts, war, or attempts to commit a crime.

Protection Features

• Noncancelable: means that policy cannot be canceled by the insurance company, except for nonpayment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.

• Guaranteed renewable: means that the policy gives you the right to renew the policy with the same benefits and not have the policy canceled by the company. However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.

Facts

• Most policies have a 90 day waiting period before you can begin collecting a benefit, but you can buy a longer or shorter waiting period.

• Most policies are issued for a term of five years of coverage, although you can buy longer or shorter benefit amount.

• When a policy is issued, you have at least 10 days to review all of the details and cancel the coverage if your not completely satisfied with the plan.

• The premium cost is usually 2% of your salary if you have a desk job and 4% of your salary if you work with your hands.

• The total amount of the benefit you collect from the plan will not exceed your net after-tax income before you were disabled.