What You Must Know About Long Term Disability Insurance?

According a general survey one person is having 25% of risk of getting disabled in his life during working years. I wonder why the disability insurance is not advertised in same way as life insurance. Many of us know about different life insurance policies. Only few know about the disability insurance policies.

In my opinion the people who are having working age must look for purchasing a disability policy as soon as possible. It’s best to secure the future.

Why it’s Necessary to Have a Disability Insurance?

There are many things which make it important to have disability insurance. Let’s say that you got injury or illness. In this case you may have to quit your job or take an extended leave of absence. If your illness prolonged or you got any permanent disability you will ran out of money within weeks or months, even with the best of emergency funds. In long illness or disability may be your employer allows you for an unpaid leave of absence while keeping your benefits. In this way your medical costs will be covered by the medical insurance but what about your living costs. How those will be covered? This is where disability insurance comes into play.

Most of younger age people think that they don’t need disability insurance. Because they think they don’t have any dependents so there is no need for that. While truth is that younger people need more disability insurance because they are having less savings and liquid assets. Those will not be sufficient in case of any disability or illness.

Though social security does provide limited disability benefits for covered workers but their definition of disability is quite strict, and one can hardly qualify that. Even after qualifying the amount you will get will be less than your actual income.

Types of Disability Insurance

There are two types of disability insurance policies:

• Short-Term Disability Insurance
• Long-Term Disability Insurance

1 – Short-Term Disability Insurance

Short-term disability policies are usually covered by the employers.  This policy covers your expenses from 30 to 90 days. This type of policy is good for things like a planned surgery from which you will make a full recovery. But if you are having a good emergency fund, which cover at least 6 months of expenses, a short term disability policy is probably not necessary for you.

2 – Long-Term Disability Insurance

Long-term disability insurance is the one which gives you a hand for longer disability. As short term policy usually benefits you for 30 to 90 days, while long term policy goes a long way. This is the policy on which this article will emphasize. A little sacrifice of money today for long term disability insurance will help you on long run.

Things to Remember For Looking a Long-Term Disability Insurance

When you are looking for a Long-Term Disability Insurance then must see that it has following characteristics:

1 – Own Occupation

Own occupation is the policy that will pay benefits even you cannot do your own. That’s why must see that the policy you are buying is “own occupation”.  Let’s say you are a surgeon and now your hands wont work or you are a secretary and now you developed a condition which prevents sitting for long periods of time. In such conditions this policy pays you.

2 - Benefit Amount

It’s best to look for such long-term disability insurance policy which at least cover your 80% of salary during the disability period. So never buy any policy which have fix dollar amount.

3 – Benefit Period

The policy’s benefit’s period must be till age of 65 years. Though having a 5 years fix period results in lower premiums but it’s not a good option for someone in their 50s or younger.

4 – Inflation Adjustments

To keep up the policy with inflation pay little extra so that benefit will be adjusted with the annual cost of living.  For example, if you get disable for 30 years, and want to draw benefits for more 30 years, you will not like to receive the same dollar amount at the end of time.

5 – Elimination Period

Best elimination period is 60 to 90 days in which your emergency fund can cover you. But if you want to have lower premiums then you can have longer elimination period policy.

Purchasing Disability Insurance

Generally employers are having both long and short-term disability insurance, and may even pay you one or both. For more information you can talk to your HR-director or benefits manager.

In the case your employer is not offering you a policy or you want to buy an additional insurance for that get several quotes and purchase the best suitable policy. But before buying long-term disability insurance policy keep the above mentioned policy characteristics in mind.

Taxes on Disability Insurance Benefit

There won’t be any taxes on your policy benefits if you pay your own premiums. If the premiums are paid by your employer then the benefits will be considered ordinary income. If you split the costs, the amount of taxes which you will pay will be equal to the proportion of the premiums that your employer paid.