Many working Americans know that it’s a good idea to have life insurance to protect their spouse and dependents in the event of their untimely death. But with around 61 million Americans living with a disability, for many, having disability income protection can be even more important than life insurance. If you’re worried about what might happen to your family if you become disabled or are considering signing up for a disability insurance policy offered by your employer, what should you know about this type of insurance?
What is Disability Insurance?
Disability insurance is a type of insurance policy that’s designed to protect you if you develop a medical or mental health condition that prevents you from doing your job. There are many different kinds of disability policies, each with its own coverage options, but most disability insurance policies fall into one of two categories: individual disability insurance policies that are purchased through an insurance broker, and group or ERISA disability insurance policies that are offered through your employer. Because the terms of these policies can vary so widely, it’s important to do your research before selecting a policy for yourself.
Disability Insurance Can Cover Two-Thirds of Your Monthly Income – But There’s a Cap
Most disability insurance policies are designed to pay out up to 66 percent of your pre-disability monthly income (up to a cap of $35,000 monthly). Meanwhile, Social Security Disability (SSDI) benefits generally cap out at a few thousand dollars per month, no matter what you were earning prior to your disability; for high earners, having supplemental disability insurance can be the key to protecting your income if you’re no longer able to work. Though everyone hopes they’ll never need a disability insurance policy, becoming disabled during your prime working years without insurance can mean losing out on hundreds of thousands of dollars in future earnings.
The Definition of Disability Can Vary By Policy
One major factor to consider when evaluating the terms of a long term disability policy is how it defines “disability.” For some policies, this is an “own occupation” definition, which means that you’ll qualify for disability benefits if you’re unable to perform the material duties of your current occupation. Other policies, especially group/ERISA policies, define disability as “any occupation” – you can receive benefits only if you can no longer perform the material duties of any occupation you’re trained and qualified for. Because the threshold for disability under an “any occupation” policy is so much higher, getting an “own occupation” disability policy can provide you with more protection.
Individual Disability Policies Can Be Pricier – But You Get What You Pay For
Most individual disability policies tend to use the “own occupation” definition, while the cheaper ERISA policies you get through an employer use an “any occupation” definition. ERISA disability policies can be quite inexpensive, with premiums as low as just a few dollars per paycheck; but when it comes to disability income protection, you often get what you pay for. Employer-paid policies have fewer options and aren’t tailored to your individual circumstances.
Meanwhile, individual long term disability policies can have a range of options from which to choose, allowing you to decide what fits your needs the best. After all, the right policy for an orthopedic surgeon may be very different from the right policy for a teacher, office administrator, or plumber – each of these jobs has very different physical and mental demands. A teacher who breaks his hand may not be disabled, while a surgeon who breaks her hand could be unable to perform the majority of her job duties. It often can be worthwhile to spend the extra money for an individual disability policy, since it will be far easier to qualify for disability benefits if you do need them.
If you’re still on the fence when it comes to choosing a disability insurance policy, give the attorneys at Dell Disability Lawyers a call. We can help you evaluate the terms of a disability insurance policy to see whether it’s a good value and tailored to your needs.