What you should know about disability insurance:

 

  • What is disability insurance? In the most basic terms, disability insurance is protection for your income.
  • Who needs disability insurance? If you depend on earned income to pay your bills, disability insurance is something that you can’t afford to be without.
  • What is the likelihood of needing disability benefits? The U.S. Social Security Administration reports that the odds of a 20-year-old worker becoming disabled prior to retirement are three out of ten (SSA Publication No. 05-10029).
  • How does disability insurance differ from life insurance? While life insurance is an important part of providing long-term financial protection for your loved ones, it pays benefits only following death. Stop and ask yourself what will happen to your family if you lose the ability to work. People often live with disabilities for decades. That’s why disability insurance is so important.

Understanding Own Occupation Disability Insurance

Do you want benefits to be lowered if you change careers because of a disability? If you don’t have a long term disability insurance policy that includes “own occupation” coverage, you could find that happening to you. Disability policies that specify “own occupation” coverage pay benefits if you lose the ability to continue to perform the duties of your current profession as the result of an illness or injury.

Not every disability insurance policy provides this level of protection. Some policies utilize a much more strict definition of total disability, stating that insured individuals are eligible for benefits only upon becoming unable to function in “any gainful occupation.” When evaluating disability insurance quotes, make sure to look closely at exactly how disability is defined and under what conditions you’ll receive benefits.

Individual Versus Group Disability Insurance

Are you wondering if you should opt for an individual long term disability policy rather than going with the group disability coverage available through your place of employment? Many people decide to go with a group plan without investigating other options available to them. Each situation is unique, but there are many circumstances under which individual disability coverage is better than a group plan, in terms of both costs and benefits.

Disability Benefits and Taxes

Are you wondering if benefits paid to you as disability benefits are taxable? If you’ve heard conflicting stories about disability insurance and taxes, that’s because in some cases disability benefits are taxable, and in other cases they are not. When comparing different disability insurance options, benefit taxation can be an important factor in evaluating disability insurance cost.

When are disability insurance benefits taxable?

Benefits paid to a disabled individual through an employer paid group disability insurance plan are taxable as ordinary income. This means that you’ll owe income taxes on disability benefits you receive via group disability insurance at the same rate you would have to pay if you earned the money as wages or salary.

When are disability benefits not taxable?

Disability insurance benefits paid to insured individuals through an individual disability insurance plan that you pay yourself (after tax not through your employer) are not subject to income tax. When you receive disability benefits under an individual disability policy, you’ll be able to utilize all the funds you receive toward covering your daily living expenses rather than having to set aside a portion for income taxes.

Factors That Affect Disability Insurance Premiums

Wondering how much you’ll have to pay for a long term disability insurance premiums? Because several different factors impact the cost of disability insurance, the best way to find out what your premiums will be is to request disability insurance quotes online. That way, you’ll be able to compare what several different insurers have to offer, so you can make the best policy selection for your particular situation.

Variables That Impact Disability Insurance Cost Include:

  • Age
  • Occupation
  • Employment status (self-employed versus employee)
  • Health history
  • Earned income
  • Smoking status

Qualifying for Social Security Disability

In addition to understanding exactly how the Social Security Administration defines total disability, its also important for you to realize that qualifying for disability benefits is not a “given.” Only about 35 percent of the claims filed are actually approved, and getting through the application and approval process can take a long time.

Even if you are approved for benefits, there’s a good chance that the amount of money you receive won’t be sufficient to take care of your ongoing living expenses. The average social security benefit is less than 750 per month. Since it’s likely that you’ll need more money to support yourself and your family in the event you become disabled, it’s certainly wise to invest in your own individual disability insurance.

In order be considered totally disabled for social security purposes, you must meet three criteria:

  1. The individual is unable to perform the work required by his or her previous occupation.
  2. The disabled person cannot perform a different type of work as a result of his or her medical condition.
  3. The person’s disability is expected to either a) last for a year or more or b) result in death.

 

Consider Portability

When your only disability insurance policy is an employer-sponsored plan, you can find yourself without this important form of income protection if you quit or lose your job. Individual disability policies are not tied to your place of employment, which means that you can keep coverage in place regardless of job changes.


Disability and Foreclosure Statistics:

  • For most families, the mortgage payment is their single largest expense. Without a source of income following a disability, making that payment often becomes impossible. 
  • By the time Social Security disability payments are approved (if ever), foreclosure proceedings could already be in process.
  • According to the National Safety Council (2004), home loan foreclosures are 16 times more likely to result from a disability than from death.
  • Per a 1998 study conducted by the U.S. Housing and Home Finance Agency, nearly half of all foreclosures are the result of a disability.
  • The best way to protect your ability to continue to pay your mortgage following a disability is to find room for long term disability insurance premiums in your budget today. Doing so will be much easier than finding a way to pay your mortgage if you lose your ability to earn an income.