INTRODUCTION TO DISABILITY INSURANCE |
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Protects your most valuable asset and your ability to earn an income. ◘ Each year 12% of the adult population suffer a long term disability. ◘ 1 out of every 7 workers will suffer a five-year or longer disability before reaching age 65. ◘ At age 32 your chances of suffering a three-month or longer disability is 6 times more likely than death. ◘ At age 35 your chances of suffering a three-month or longer disability is 50%. ◘ At age 45 your chances of suffering a three-month or longer disability is 44%. ◘ On average 7 out of 10 claims for Social Security disability benefits are refused the first time requested. Statistics were obtained from Commissioner’s Disability Tables and the Senate Finance Committee. Disability insurance pays cash benefits to the policyholder in the event the insured is unable to work due to sickness or injury. That cash benefit ranges from 50% to 70% of income. The insurance company will not pay more than 70% of income because there must be an incentive to return to work. ◘ If you pay the premium the benefits are normally received free from income tax, if the premiums are paid by an employer, the benefits are taxable as ordinary income. A disability policy is composed of various elements: ◘ Elimination Period – It is the period of time the insured must wait after becoming disabled to receive benefits. Typical waiting periods are 30, 60, 90, 120, 180, and 360 days. The longer the elimination period the less expensive the policy. ◘ Benefit Period – It is the period of time the benefits will be paid following the elimination period. The benefit period could be from 2 years to age 65 to lifetime. The longer the benefit period the more expensive the policy. ◘ The Amount of Benefit – The larger the pay-out the more expensive the policy. The benefit will not normally exceed 70% of income. ◘ Residual Benefit – Percentage of benefit paid if you return to work and are still partially disabled and cannot return to work full time or cannot earn your full income. ◘ Own-Occupation – Pays a benefit if your are unable to return to your present occupation but can work doing something else. For example, a doctor who is a surgeon, cannot return to surgery but can teach. This is the most expensive type of disability policy. ◘ Reasonable or Any Occupation – Pays a benefit while disabled, but stops when you are able to return to work at a job that matches your education and experience. This policy is less expensive than an Own-Occupation policy. ◘ Occupation – Occupation is a factor used in determining rates. For example, a doctor’s rate would be much lower than a blue-collar worker. | |||
