Get the Facts: What Does Disability Insurance Cover?

Posted on November 5, 2018

26% of bankruptcy filings are a result of a condition or disability that prevented a stable income to come into the household. Many of these filings could have been avoided had the individual known what does disability insurance cover and how to get it.

If peace of mind that your family is protected in the event of a medical crisis is important to you, read on. We've put together some important factors for you to consider regarding disability insurance.

What is Disability Insurance

Disability insurance is a form of coverage that helps you in the event that you can no longer earn an income due to mental or physical disability. There are a number of variations of disability insurance. These typically vary in areas like premium costs, wait periods and overall coverage.

Disability insurance can be a valuable asset, and in some areas can even be more important than holding life insurance. This is because you're much more likely to have an injury or condition arise than you are to die prematurely.

Types of Disability Insurance

While looking for the right disability insurance for you, you'll find that there are two different types to choose from. There is short term or long term disability insurance. Both are able to help cover a portion of your monthly income however that are some differences.

Short-term disability insurance typically pays out for a few months to a year and covers about 60% to 70% of your base salary. Long-term disability insurance, however, will stretch out until the disability ends and will usually cover 40% to 60% of your salary.

Social Security Disability

Social security disability is a type of disability coverage provided by the government. This disability coverage typically comes in the form of long-term disability. Long-term disability is entitled to every citizen, provided that they meet all of the eligibility requirements.

It's important to remember that if you work as a freelancer, contractor, or another form of self-employment you may not be entitled to this benefit. This is because those who are self-employed typically do not receive a standard paycheck with social security tax.

Taxes for Disability Benefits

Many people receiving disability want to know if their disability benefits will be taxed. Currently, if you receive your disability through the government it is already paid with pre-tax dollars. It's important to know whether you are receiving your disability coverage through an employer-sponsored plan or are paying for your own coverage through another program. In these cases, you likely will have to pay taxes on it.

The earnings amount of the individual will also determine the tax percentage. Together, this will determine the amount of coverage they receive.

The Benefits of Disability Insurance

One in seven workers is likely to become disabled for up to five years. This means they would be unable to provide an income for themselves and their family. In many of these cases, the disabled individual is the sole provider for the household.

Disability insurance allows the individual with the disability to continue receiving a portion of their payment. This drastically reduces the severity of unemployment. This also plays a large role if the individual is a business owner and has employees that are still reliant on a certain amount of income.

What Does Disability Insurance Cover

There are a number of conditions that can be covered by disability insurance. It really depends on which plan you're talking about. In cases of short-term disabilities, it will usually include injuries such as broken bones or back injuries, flare-ups from issues like diabetes, or some mental disorders that don't allow the individual to continue their job.

Long-term disability insurance, however, is typically reserved for more severe, long-term conditions. These conditions include cancer, muscular tissue damage, or even loss of vision.

How to Get Disability Insurance

There are a few ways to get disability insurance. You can either:

  • Register with a program that is sponsored by your employer. Be sure to know here whether or not you will be responsible for paying some or all of the premiums.
  • Buy your disability insurance through your employer, in the event that it is not an included benefit but is available for purchase. In some cases, this will be more affordable than buying through an outside association.
  • Buy your disability insurance through an association that is dedicated to professional groups.
  • But an individual disability insurance plan that can purchase through an insurance broker or insurance company. Most of these policies offer both long-term coverage and short-term coverage.

Who Offers Disability Insurance

Finding disability insurance doesn't have to be a difficult thing, it all depends on the path you choose to take. If you do not choose to receive or buy disability insurance through your employer, or you work as a freelancer, you still have options.

Insurance companies like Guardian, Northwestern Mutual, Principle, State Farm, Sun Life Financial, Mutual of Omaha, and Mass Mutual all offer both short term and long term disability insurance. You may also want to check if it's available through your current health insurance provider.

What to Keep in Mind

If you do choose to purchase your own disability insurance, it's smart to keep a few things in mind. Be aware of what the requirements are for each plan. Many plans will not accept you for certain pre-existing conditions.

Also, know what your wait period is for your disability insurance. Your wait period is the amount of time you must wait between being approved for disability payments and actually receiving the payments. Finally, know what the premiums are and if you can afford them. You'll find that the shorter waiting periods typically come with

Getting the Most Out of Your Disability Insurance

By knowing what does disability insurance cover, where you can buy it, and what is required, you're already ahead of the game. Now you can protect yourself in the event of a condition.

Remember, whether you choose short-term or long-term insurance there is nothing more important than the peace of mind it gives you and your family when things get hard.

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