What is Disability Insurance?

We have insurance for our cars, our homes, our health, our lives, and even our pets! But what about our ability to earn money? Well, that’s where disability insurance comes in. Although you may not have heard as much about this type of insurance as some of the others, disability insurance is something that you might need more than you think! 

Disability insurance is an insurance that covers both on-the-job and off-the-job injuries or illnesses that affect your ability to work or earn an income. Disability insurance provides you with a portion of your income in the case of ANY injury or illness (unless it is self-inflicted)--and can stack with your worker’s compensation if it occurs on the job.

Many of these things can happen at any time without warning and prevent you from performing your regular duties at work or showing up at all. More often than not, Social Security disability won't cover your loss of income to the fullest extent.

Not everyone needs private disability insurance, but if you rely on a steady paycheck to pay your bills, stay out of debt, and save up for the future, you probably do--regardless of the industry or environment where you work.

A disability insurance policy is an agreement made between insurance companies and policyholders. You make monthly payments that range typically between $200 to $400 per month depending on the person. In exchange for payments, the insurance company would agree to pay you a monthly benefit amount for a potential disability that affects your ability to work and make a living for yourself. 

The main point of disability insurance is to replace a percentage of the income you would lose due to your inability to earn a paycheck. If you’re unable to work, for any reason, this can help you buy groceries, pay your bills on time, cover your rent or household expenses and provide for your family. 

What Is The Difference Between Worker’s Compensation and Disability Insurance

You may be thinking: An on-the-job injury? Isn’t that what worker’s comp is for? Well, the short answer is yes. However, that is all that worker’s compensation is for: an injury or illness that occurred on-the-job. What if an injury or illness occurs off-the-job that prevents you from working and thus earning an income. 

This is where disability insurance comes in. Disability insurance will cover an illness or injury that prevents you from working, regardless of where it happened. 

Moreover, disability insurance can stack with your worker’s compensation. This means that an injury on-the-job can qualify you to receive BOTH disability insurance and worker’s comp. Just make sure to read the fine print of your disability insurance policy, as it may not pay out if you qualify for worker’s comp.

A Disability Insurance Policy Will Include: 

  • How much each month you’ll pay for your coverage.
  • How the policy defines disability: Some policies may pay out a monthly benefit if an injury directly affects your work, but allows you to perform other work. Other policies will not pay benefits if you are able to work in another job, even if you are earning less money. 
  • What your benefits will be: In most cases, your benefit amount will be a percentage of your income, typical policies pay 60 to 80 percent of what you would earn before your disability. 
  • How long your desired benefits last: This period can fluctuate between the number of the month, years, or to a certain age. 

Why Buy Disability Insurance? 

You Provide the Income for your Family 

If others rely on you, you need disability insurance to protect them and yourself. Support for a partner, children, parents, or family friend would be impacted by your financial situation. You should make sure they are taken care of in case of an emergency injury or illness. Knowing the exact policy to apply to will help you decide exactly how much you are wanting to receive each month’s benefit and it’s duration. 

You're Paying Off Debt

Credit card payments and mortgages can place a tremendous amount of stress on families if a breadwinner’s job is compromised. If you're on the hook for big monthly payments, a sudden loss of income can affect your ability to make them in full and on-time. Factoring how much you pay toward debt balances every month into your coverage amount will ensure you don't fall behind if you get injured or sick, even if it's temporary.

Your Employer Doesn't Offer Enough Coverage or Any At All

Most traditional employers offer short-term disability insurance, but that usually only replaces up to 50% of your income for about three to six months. Plus, you'll have to pay taxes on the payments. These policies are obviously contingent on your employment with the company. If your injury or illness leads to job loss, you're out of luck.

That's why experts at Policygenius recommend buying additional long-term disability insurance for the most "comprehensive and cost-effective" coverage. Long-term disability insurance can effectively pick up where short-term coverage or your emergency fund leave off, typically between 90 days and a year after the incident (this is known as the elimination or waiting period).

You Are Self-Employed

Disability insurance is crucial for self-employed workers, freelance writer Jackie Lam wrote for Business Insider. An insurance benefit can help provide consistent income and help cover ongoing business expenses.

You may also consider paying a higher premium each month to shorten your elimination period or the time you have to wait to receive insurance payments since you don't have short-term coverage from an employer to tide you over.

StarFort Financial 

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