Disability Insurance

What is disability income insurance?

Disability income insurance is insurance that pays benefits when you are unable to earn a living because you are sick or injured. Like all insurance, disability income insurance is designed to protect you against financial disaster. Most disability policies pay you a benefit that replaces part of your earned income (usually 50 percent to 70 percent) when you can’t work.

Types of disability insurance:
In general, disability insurance can be split into two types: private insurance (individual or group policies purchased from an insurance company) and government insurance (social insurance provided through state or federal governments).

Private disability insurance
Private disability insurance refers to disability insurance that you purchase through an insurance company. Many types of private disability insurance exist, including individual policies, group policies, group association policies, specialized group policies, and riders attached to life insurance policies. Depending on the type of policy chosen, private disability policies usually offer more comprehensive benefits to insured individuals than social insurance. Individually owned policies may offer the most coverage, followed by group policies offered by an employer or association.

Government Disability Insurance.
Workers’ compensation and Social Security are two well-known government disability insurance programs. In addition, some states, including California, Hawaii, New Jersey, New York, and Rhode Island, along with Puerto Rico, have mandatory disability insurance programs that provide disability benefits to resident employees. If you are a civil service worker, a military service member or other federal, state, or local government employee, there are many disability programs set up to benefit you. In general, however, government disability insurance programs are designed to provide limited benefits under restrictive terms, and you should not rely upon them (as many people do) as your main source of income if you are disabled.

Who needs disability insurance?
The odds are . . . you do!
Your chances of being disabled for longer than three months are much greater than your chances of dying prematurely. One reason for this is that medicine has made treatable many illnesses and injuries that formerly would have killed you. Although this is good news, it increases your need to protect your income with disability insurance.

Working individuals
What would happen if you suffered an injury or an illness and couldn’t work for days, months, or even years? If you’re single, you may have no other means of support. If you’re married, you may be able to rely on your spouse for income, but you probably also have many financial obligations, such as supporting your children and paying your mortgage. Could your spouse really support both of you? In addition, remember that you don’t have to be working in a hazardous position to need disability insurance; accidents happen not only on the job but also at home, and illness can strike anyone. Everyone who works and earns a living should consider purchasing disability income insurance.

Business owners and employers
If you own a business, disability insurance can protect you in several ways. First, you can purchase an individual disability policy that will protect your own income. Second, you can purchase key person insurance designed to protect you from the impact that losing an important employee will have on your business. Third, you can purchase insurance to fund a salary continuation program that will help you reduce your income taxes while protecting key employees at the same time. Fourth, you can purchase business overhead expense insurance to ensure that if you get sick, your business will stay healthy. Finally, you can purchase a disability insurance policy that will enable you to buy your partner’s business interest in the event that he or she becomes disabled.