Disability Insurance
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Welcome to the disability insurance section
of our Web Site. This section covers the basics of
disability insurance. If you would like to get an
individual disability insurance quote simply complete and
submit the appropriate form.
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Disability Insurance
Protects your most valuable asset and your
ability to earn an income.
Each year 12% of the adult
population suffer a long term disability.
1 out of every 7 workers
will suffer a five-year or longer disability before
reaching age 65.
At age 32 your chances of
suffering a three-month or longer disability is 6 times
more likely than death.
At age 35 your chances of
suffering a three-month or longer disability is 50%.
At age 45 your chances of
suffering a three-month or longer disability is 44%.
On average 7 out of 10
claims for Social Security disability benefits are
refused the first time requested.
Statistics were
obtained from Commissioner's Disability Tables and the Senate
Finance Committee. Disability insurance pays cash benefits to the
policyholder in the event the insured is unable to work due to
sickness or injury. That cash benefit ranges from 50% to 70% of
income. The insurance company will not pay more than 70% of
income because there must be an incentive to return to work.
A disability policy is composed of various
elements:
Elimination Period -
It is the period of time the insured must wait after
becoming disabled to receive benefits. Typical waiting
periods are 30, 60, 90,120,180, and 360 days. The longer
the elimination period the less expensive the policy.
Benefit Period - It
is the period of time the benefits will be paid following
the elimination period. The benefit period could be from
2 years to age 65 to lifetime. The longer the benefit
period the less expensive the policy.
The Amount of Benefit
- The larger the pay-out the more expensive the policy.
The benefit will not normally exceed 70% of income.
Residual Benefit -
Percentage of benefit paid if you return to work and are
still partially disabled and cannot return to work full
time or cannot earn your full income.
Own-Occupation -
Pays a benefit if you are unable to return to your
present occupation but can work doing something else. For
example, a doctor who is a surgeon, cannot return to
surgery but can teach. This is the most expensive type of
disability policy.
Reasonable or Any
Occupation - Pays a benefit while disabled, but stops
when you are able to return to work at a job that matches
your education and experience. This policy is less
expensive than an Own-Occupation policy.
Occupation -
Occupation is a factor used in determining rates. For
example, a doctor's rate would be much lower than a
blue-collar worker.
Guaranteed Renewable
- Guaranteed Renewable policies cannot be cancelled by
the insurance company even if a change in the insured's
circumstances would make him or her a greater risk. Plus,
the insurance company cannot make any changes to the
provisions of the policy, or add restrictions. When
purchasing an individual disability policy it should be
Guaranteed Renewable.
Non-Cancelable -
Guarantees future premiums will not be increased. When
purchasing an individual policy it should be
Non-Cancelable.
Presumptive Disability
- Presumptive disability means that you are considered
total disabled and eligible for benefits for the loss of
sight in both eyes or the loss of two limbs. The better
contracts also presume total disability for the loss of
hearing in both ears, loss of the power of speech, or the
loss of the use of two limbs.
Other Benefits that can be added to an individual
disability policy, but could also increase the cost:
Protection Against
Inflation - A benefit that can be added that offers a
cost-of-living adjustment for inflation during a
long-term claim.
Automatic Increase Rider
- Automatically increases monthly benefits for a
specified period of time. A typical increase is 5%
compound.
Future Increase Options
- Allows the insured to purchase additional benefit
amounts without proof of insurability.
Capital Sum Benefit
- Pays the insured a lump sum benefit up to 12 times the
monthly benefit if the insured loses the sight of one eye
with no possibility of recovery or has a hand or foot
severed. This benefit is paid in addition to the other
benefits.
Rehabilitation Benefit
- To help a disabled insured return to work, this benefit
will pay some of the expenses incurred when the insured
enrolls in an approved rehabilitation center. This
benefit is paid in addition to the other benefits.
Transplant &
Cosmetic Surgery Benefit - Under this benefit, any
disability arising from donating a transplant organ,
improving your appearance or correcting a disfigurement
will be covered by the policy.
Types of Coverage
Social Security
Social Security does not
just provide for retirement income but disability income
as well. However, more than 70% of the applicants who
apply, fail to get coverage the first time they apply.
You can get an estimate of what your benefit might be by
going to the Social
Security web site.
In 1992, the average
monthly payment for a disabled worker was $642; the
average monthly payment for a family of a disabled worker
was $1093.
Eligibility is based on
being unable to perform any gainful employment.
You are eligible for
benefits after you have been disabled for 5 months and if
the disability is expected to last 12 months.
85% of Social Security
disability payments are subject to federal income tax if
your income exceeds $34,000 individually or $44,000
jointly.
Workers Compensation
Most employers are required to provide this
coverage. The amount and duration varies by state. Workers
Compensation only pays if the disability occurs on the job, and
usually lasts for only a few years and the payments are low.
Individual Policies
For individual policies, the applicant needs to
qualify and go through an underwriting process, similar to the
process required for life insurance. The applicant could be
subject to a higher premium or even be declined based on his or
her occupation, medical history, or lifestyle. Individual
policies are usually purchased by high income professionals
because of the cost.
Group Policies
Some states require employers to carry group
disability insurance anywhere from 26 to 52 weeks.
Group Long Term Disability (LTD)
Group LTD is carried by almost half of mid-size
to large employers and provides long term benefits for at least 5
years covering about 60% of salary. The premium is usually very
low, does not require proof of insurability, and often is fully
paid by the employer. If you would like to get a Disability
Insurance Quote, click here.
This web site may
contain concepts that have legal, accounting and
tax implications. It is not intended to provide
legal, accounting or tax advice. You may wish to
consult a competent attorney, tax advisor, or
accountant.
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