A Comprehensive Guide to What is disability insurance?

A Comprehensive Guide to What is disability insurance

When you plan to choose an insurance policy for yourself, it is very important to understand it in detail. Just because, we understand about insurance doesn’t mean we understand all its types. And one of the lesser-known types of insurance is disability insurance. It is a very useful type of insurance and you must know about it. That’s why we have come up with this article to give you an insight into what is disability insurance.

 

 

What is Disability Insurance?

Well, it provides supplementary income to the insured in an event of accident that leads to disability of him or her. In such instances, people cannot work to earn their bread and butter and often lose their job. It is mainly designed to replace your gross income from 45% to 65% on a tax-free basis. In case you research before choosing an insurance company, you will find ones that offer bonuses and commissions as income to policyholders. This policy is of huge benefit to those who work in dangerous working conditions. Due to disability they are helpless and struggle hard to earn a basic standard of living.

We do agree that some employers offer plans and worker compensation but the benefits are often limited. The scope of the coverage is short and disability is not for one day so they need better coverage. They are mostly part of some sort of suite that cannot meet the basic needs of their employees. Due to income protection, some people even call it income protection insurance.

 

 

Types Of Disability Insurance

It has two types. They are:

 

Short-Term Disability Insurance

Short-term disability insurance offers income protection or benefits for workers on a temporary basis. And yes, they must qualify for the insurance due to disability. One issue that the policyholders face is that the claim is subject to a short waiting period. It is for about one to two weeks. It means the policyholders need to wait for this much time to avail of the benefits of the insurance. After this period, the policyholder starts receiving benefits for a limited period of time.

Also read: 9 Factors to Help You Choose The Best Disability Insurance?

Depending on your policy, you will receive benefits for a maximum of 26 weeks. Also, the benefits will range between 50% and 70% of pre-disability income.

 

Long-Term Disability Insurance

This insurance policy is for those workers who are unable to perform their duty for an extended or long period of time. Just like short term insurance, long-term insurance also faces the wrath of the elimination period. Here, the waiting period is for about 12 to 24 months.

Disability can completely devastate a family with no financial safety. So long-term insurance will ensure that the employee receives a percentage of the income even if they cannot work due to disability. If we go by the US Census Bureau’s estimate, one in five employees has a high chance of becoming disabled.

 

Based on individuality, disability insurance is of two types. One is the Group disability insurance and the other is individual disability insurance.

 

Individual Insurance Policy

The individual policy covers only individual workers. It is ideal for people who don’t receive disability insurance through their work. Also, people who earn high can opt for it for extra coverage. In most cases, the policy demands a higher premium for coverage and does not offer much customization. Individual policyholders need to pay their own premiums for the insurance policy.

 

Group Insurance Policy

Employers and professional associations provide group disability insurance. The members-only premium is lower than the individual policies. This insurance offers customization to the policyholders based on their needs. It offers coverage up to the age of 75 to full-time workers.

Depending on your sponsor, either the policyholder needs to pay the premiums or the sponsor or both of them. Some companies even impose a service wait for the people who enjoy the benefits of insurance. For example, the employees who recently joined the company won’t be eligible for group disability insurance. Some group sponsors even impose requirements like worked hours. In most cases, it makes the part-time employees ineligible to avail of the benefits.

 

 

How Much Does A Disability Insurance Cost?

Disability insurance uses a variety of factors to come to the conclusion of the final premium. Generally, the policy premiums range between 1.5% and 3% of the policyholder’s gross income. Age is another major factor that influences the premium amount. The minimum age is 18 years and the maximum depends on the insurance company.

Women are more prone to facing extreme health conditions. They are more prone to depression and autoimmune disorders while pregnancy and childbirth come naturally to them. So women need to pay a higher dollar amount. Another category of policyholders is smokers. They have to pay 25% more amount for the insurance policy as compared to the non-smokers.

Also read: War Risk Insurance: Definition, Policy, Act (Explained)

 

 

Final Words

If your policy doesn’t mention then you will get additional benefits of social security with disability insurance. Most of the insurance companies provide benefits to people from two to ten years. Disability insurance covers two types of coverage. One is “any occupation” and the other is “own occupation”. With any occupation, if you are not able to perform pre-disability duties the policy won’t kick in. It will only imply if you cannot perform any productive duty other than your occupation. On the other hand, with “own occupation” the situation is totally opposite. It kicks in if you cannot perform the pre-disability duties. It considers the policyholder totally disabled for performing any type of duty. This coverage is mainly popular amongst high-earning professionals.

This article entirely covers the various aspects of disability insurance. So you won’t have to research more to understand it. You must consult an expert to find the best policy provider that offers the best coverage. Some of the best companies providing it are Guardian life, Assurity, etc. In case, you want to ask questions on this topic, then feel free to post your queries in comments. We will try to answer your queries with relevant answers as soon as possible.