Your most important asset is not your home, your car, or your jewelry.{{more}}
It’s your ability to earn a living. Your home, groceries, gas, etc. are all paid for with a paycheck. What would happen if that paycheck stopped?
Unfortunately, if your paycheck stops coming, the bills do not and that can lead to problems very quickly.
The majority of all bankruptcies are related to medical expenses or loss of income due to major medical events. Disability insurance is the way to avoid landing in such an unfortunate situation.
There are two types of Disability Insurance – Long and Short term
Long term disability insurance pays between 60-70 percent of salary after a certain period of time (generally 90 or 180 days) that a person is unable to perform their job due to illness or injury with coverage lasting until age 65.
There are two important distinguishing types of coverage: one pays if the employee is unable to do their own occupation and the other provides benefits only if the employee is unable to work at any kind of job.
Short Term Disability covers lost wages for a specified period of time generally the first 30-180 days of disability.
It bridges the period after sick time is exhausted and Long Term Disability begins. Unless one has a cash reserve that will cover the elimination period for LTD, (and most of us do not), STD should be part of a benefit portfolio.
Often Long Term Disability Insurance is a group benefit provided at little or no cost to the employee. Some employers also offer Short Term Disability as a “voluntary” benefit meaning the employee pays the premium, but if offered through the employer, it can cost less.
The most vulnerable group . . . . .
Those who are self employed often overlook purchasing disability insurance – but have the greatest need.
For small business owners or private contractors their ability to earn a paycheck is totally dependent on personal production.
For them, disability insurance is critical and should be tied to their own occupation, not any occupation. Individual disability policies differ from group plans, in that greater attention is paid to type of occupation and personal health as all the risk is focused on one person. However, there are competitive plans available in the marketplace.
What about Social Security Disability Insurance?
The criteria for qualifying for SSDI are very stringent and require that one not be able to work at any job due to a disability.
It also covers a smaller percentage of income, and is generally not enough to cover living expenses.
Many LTD policies will pay the difference between SSDI and the maximum monthly eligibility.
How and where to purchase Disability Insurance . . .
First, check with the employer to find out if and what disability benefits are offered. Not all employers provide the maximum coverage allowed, but often will allow employees to “buy up” for additional coverage at a minimal cost.
If Short Term disability insurance is not offered, ask about bringing in a company to offer on a voluntary basis.
Those who are self employed or independent contractors can purchase disability insurance directly through an agent.
Long Term Disability insurance is the most important, as it will provide income loss protection if an individual is permanently disabled.
Also, it is important to check periodically to make sure that the monthly benefit is keeping pace with income. Many people take disability insurance when first in business, but forget to increase it as their incomes increase.
Trish Pearson is a licensed independent insurance agent and certified Long Term Care Specialist. Contact her at 203-640-5969 0r trishpearson281@gmail.com.