Understanding How Disability Insurance Can Protect Your Income

Research from the Council for Disability Awareness shows that 5% of workers in the U.S. experience some type of disability due to illnesses, injuries, or pregnancy. If you’re unable to work because of a disability, you will likely find it difficult to survive, mainly if you entirely depend on the income from your regular job. However, with the right disability insurance policy, you can secure your future and have a guaranteed income in the event of a disability. Here’s an in-depth look at the importance of disability insurance.

What Is Disability Insurance and How Does It Work?

Disability insurance is a type of insurance policy that covers lost income if the policyholder cannot work due to a disability. It pays out anywhere from 40% to 65% of the policyholder’s pre-disability income when the policyholder remains disabled. Insurers generally classify disability into two groups. These include:

  • Own-occupation disability refers to a disability that makes you unable to perform your regular job, though you may perform other jobs. For instance, while a teacher suffering from speech impairment may not teach verbally, they may serve other non-speech-related tasks.
  • Any-occupation disability – This is the type of disability that makes you unable to perform any job.

Types of Disability Insurance

  • Short-term disability insurance – With a policy duration of twelve months or less, this policy is suitable for disabilities resulting from injuries and pregnancy.
  • Long-term disability insurance – This policy provides coverage for 5 to 10 years or more. It is suitable for long-term disabilities caused by severe injuries and long-term illnesses.

Who Needs Disability Insurance?

Disability is unpredictable. Research shows that more than 25% of today’s 20-year-olds will suffer some form of disability before reaching retirement age. Furthermore, the risk of disability also increases with age due to the prevalence of diseases such as arthritis in old age. This means that nearly anyone may need disability insurance.

You should carry disability insurance if:

  • You solely depend on your monthly income from work
  • You want adequate financial protection in case you become disabled
  • You want to increase your insurance coverage
  • You suffer from diseases such as cancer, musculoskeletal disorders, mental health issues, circulatory diseases
  • You’re planning to get pregnant
  • You work in an injury-prone industry such as construction and transportation

What Is the Cost of Disability Insurance?

About 51 million Americans don’t have disability insurance, except the basic coverage offered through social security. The perceived high cost of disability insurance is one of the reasons why many Americans shun disability insurance. On average, you’ll spend about 1% to 4% of your annual income on disability insurance premiums. The good news is that long-term disability policy benefits are not taxed, which means you will receive higher payouts if you become disabled.

On the other hand, private short-term disability policy premiums are usually much higher than the amount of coverage they offer. Therefore, experts recommend only purchasing short-term disability insurance policies from your employer. You can get an affordable yet comprehensive disability insurance policy by shopping around and comparing different quotes.

The right disability insurance can cover up to 65% of your pre-disability income. At Premier Protection, your needs are our priority. Contact us today for all of your federal employee insurance needs.

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