26 Jun The Benefits Of Buying Your Own Disability Insurance Policy
Insurance is used by Americans for protecting a variety of assets including jewelry, homes as well as their cars. However, many people simply do not care about their ability to work and earn a comfortable living which is their most important asset. This is dangerous, especially when you consider the fact sheet released by the Social Security Administration stating that more than 25% of 20-year-olds today may become disabled before they turn 67.
Also, if you get ill or disabled early due to an injury or disease, you will lose much more than a sedan or a house in terms of lost wages. For instance, 20 years of labor for $50,000 a year equates $1 million. While it's true that you won't end up on road if you do not have any insurance and are unable to work due to being hurt or ill as you will receive some form of disability benefits from the Social Security Administration but the money given by the Social Security Administration is not enough to live comfortably.
The average disability payment given by the Social Security Administration is less than $ 1130 per month as of March 2013. Also, not everyone is eligible for these benefits as the eligibility process is extremely complex. These benefits are only applicable to Americans who are unable to work for at least 12 months due to a medical condition.
Most families cannot fathom the prospect of living on half the paycheck or losing a few months' income. Therefore, it makes sense for you to get some kind of disability insurance to keep yourself safe in case of an injury or disease that renders you disabled. Here's a list of some of the options available to you for disability insurance.
Group Disability Plans
These plans are usually offered through the employer and these are the most common type of disability insurance plans available to anyone. The lowest tier of this type of plan is extremely affordable for everyone but there is a lot of variation in the benefits offered under this plan. Keep in mind that you won't even come close to replace your full paycheck as the usual reimbursement rate is around 60%.
Also, there is often a set limit on the maximum amount that a person can be paid on a monthly or annual basis. Some plans also have restrictions on the maximum time for which benefits can be paid, and in some cases, it can be just as little as two years. Therefore, it is important for you to thoroughly read the fine print on your group insurance policy as it may not be of much help in case you are disabled and unable to work.
Individual Disability Plans
You have the option to buy your own individual plan in case you don't like the plan being offered by the employer or there is no group plan offered by the employer. However, it's also important for you to keep in mind that the pricing will also be based on your specific needs and situation. These plans work similar to health insurance which means you can get these at a lower cost when you are young and healthy but the premium increases if you are older and have some health troubles.
However, you will have a lot of options to choose from when you start shopping for individual plans. For instance, you can buy coverage for lost bonus income that is above your salary and these individual plans also allow you to keep the cover even when you change jobs. An individual plan is a good option if you have specific needs and you are willing to shop around to get the best deal.
Supplementary Disability Plans
These type of plans make sense if you are willing to rely on Social Security for your long-term disability benefits or if you have only the basic disability plan sponsored by your employer. These plans offer an additional layer of coverage that can help pay for your living expenses or medical expenses that may not be available under a long-term plan. These plans allow you to add to your income for a modest monthly fee.
In case you receive only 60% of the paycheck under the group plan sponsored by your employer, you can get that amount up to 80% by paying a small fee for the supplemental policy.
As far as choosing the coverage is concerned, it will be dictated by your unique needs which is the case with any financial product. A basic safety net will be provided by the government in case of a tragedy and it's better to have some disability coverage instead of none. However, keep in mind that you won't be able to pay all the bills in case of a medical emergency even when you are covered. Therefore, it is recommended to thoroughly read the fine print on the disability coverage offered by your employer. It will help you decide whether you need to buy an individual plan or supplemental coverage.
Important Things You Need to Know About Buying Individual Policy
There are several disability insurance options to choose from but you should keep in mind the following tips to get the best deal for your specific needs.
Guaranteed Renewal and Non-Cancellable
Most of the reputable insurance companies offer disability policies that are automatically renewed if you pay the premium on time and these policies cannot be cancelled. However, it's important for you to read the policy document to make sure this feature exists.
Waiting Periods and Elimination Periods
You need to know the amount of time you will need to wait to get the first disability payment as well as the maximum period of time for which the benefits will be given by the insurance company. These terms not only dictate the reimbursement but also the price of the insurance policy.
For instance, the premium for a policy where the benefits kick in after a waiting period of 120 days will be lower than the premium for policy where the benefits kick in after 60 days. The waiting period works similar to deductibles on the car insurance as you can bring down the premium cost by extending the waiting period.
Coverage for Own Occupation
Inclusion of this term in your insurance policy means that it's applicable to your current occupation and your ability to perform well. You may also buy some cheap insurance plans that may not pay you any compensation in case you are able to perform any kind of job even when the job pays only a fraction of your earlier salary or requires you to step back in your career.
Future Buying Option
A policy that comes with this feature allows you to increase your coverage with the increase in your wages though you will have to pay a slightly higher rate. This feature also means that you won't have to take another physical or rewrite the whole insurance policy. It's an excellent option for people who change jobs often or keep climbing the corporate ladder.
Business Overhead Expense Coverage
In case you have significant business expenses that aren't part of your regular paycheck or you run your own business, you may also get coverage against overhead charges in addition to lost income. If you don't have this coverage, the policy will protect your paycheck but you may lose your business as various expenses such as utilities or rent will keep piling up. Anything that's tax deductible as business expenses is usually covered by it.
Cost of Living Adjustment
You will find it difficult to keep up with the expenses in case your disability payout remains fixed but the expenses keep rising, especially if you are unable to work for five years or more. Therefore, you should check whether the disability payments are indexed to inflation in case you have to make a claim.
Most policies issued by insurance companies do not provide coverage after retirement. However, you will need coverage in case you do not have enough retirement savings. Therefore, you need to check for a rider in the disability insurance policy to make sure that it contributes to your retirement savings in addition to your living expenses.
Another option for you to get benefits after retirement in case you do not have enough retirement savings is to pay extra premium to get lifetime benefits. These benefits do not expire when you reach the age of 65. You will have to pay extra premium for this rider which can be a few percentage points in case you are healthy and young but it may also go above 20% in case you are older.
Call Pacific Insurance Group today to get your fast free Disability Insurance Quote at (425) 246-4222