Despite the fact that it's a very important form of financial protection for temporary or permanent disablement, relatively few people choose to buy disability insurance coverage. A 2007 National Association of Insurance Commission (NAIC) survey revealed that 56% of U.S. adults claimed that they wouldn't be able to pay the bills should they be unable to work for 12 months or greater. Although the best disability insurance may already be in place, this won't be the case for the majority of people.
Statistical Proof of the Need for Disability Insurance Coverage
- 12% of American adults will suffer a long-term disability.
- About 14% of U.S. workers have suffered a disability that lasts for 5 or more years before they reach the age of 65.
- Should someone be over 35, there is a 50% probability of that person experiencing a disability that lasts for a minimum of 3 months.
* The above figures were provided by the NAIC.
Why Buy a Private Disability Insurance Policy?
The objective of a disability insurance policy is to replace up to two-thirds of any lost pre-tax income in the event that the insured is unable to work due to a defined medical condition. It is necessary to deduct other sources of income, such as Social Security Disability Insurance (SSDI) and disability payments for a different policy from any payment. The reason that these rules are in-place is to give the insured sufficient financial incentive to return to work at the earliest opportunity.
Variables That Affect the Cost of Disability Insurance Coverage
- Monthly benefit. It is necessary to decide how much income is needed. The payment remains the same for the full disablement period.
- Definition of the disability. "Own occupation" policies are more expensive than "any occupation" policies. This is because private disability insurance will pay out if a person cannot work in a specific occupation, such as roof repair, when they could still perform a desk-based role.
- Period of deferment. A certain amount of time, ranging from a few weeks to a couple of years, must elapse before a policy comes into effect. The longer the deferment period, the less expensive the disability income insurance premiums will be.
- Benefit period. Short term disability insurance is less expensive than its long term equivalent.
Are Existing Forms of Disability Income Insurance Sufficient?
- Although it is regularly offered as part of an employment package, benefits are usually limited in terms of the overall compensation package and duration. The state lived in will determine what the minimum features will be. Any benefits will only apply if the medical issue is work-related so no assistance will be provided in any other scenario.
- People who are working may already have some short term disability insurance coverage, but it can be difficult to qualify for benefits. Ginger Applegarth of MSN Money stated that: "More than 80% of the applicants fail the first time around. Some hire a social security disability lawyer to help in the appeals process." Relying on the state could not only be very stressful, it could also prove fruitless. The self-employed will need private disability insurance if they require guaranteed help.
Sources
Applegarth, Ginger. (Aug 20, 2008). "Disability insurance can save your life." MSN Money.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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