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January 2004
Index of all
past
Affiliate Corner columns
Disability income insurance provides
important financial protection.
by
Jack Sughrue, Allstate
Insurance
and Mike Juliano, Farmers Insuarnce
With the Baby Boom generation aging, much attention is now being focused on what promises to be an increased need to meet the costs of long-term care. While long-term care is usually associated with older people, a long-term disability can affect a person of any age. Disability income insurance won't protect you from the disability, but it will help protect your income when you can't work due to disability.
Defining disability income insurance
If you are sick or injured, disability income insurance will pay a portion of your salary to you in benefits. Sick pay, which can pay benefits from a few days to up to a year in some states, is one form of disability income insurance. Long-term disability income insurance is the set of benefits paid when you are disabled severely enough that you can't perform the basic function of your job.
What happens if you become disabled and don't have the insurance? If you suffer a permanent disability, you may receive social security benefits. Typically, you cannot receive more from all disability benefit sources than the total of the after-tax income that you receive on the job.
Questions to ask
Disability income insurance policies differ greatly from insurer to insurer. To get the policy that's right for you, ask yourself these questions:
When do benefits need to begin? The earlier your benefits begin from the onset of disability, the more a policy will cost you. Typically, you can buy a cost-efficient policy with a waiting period from six months to a year. However, if you would be unable to survive that long without income, of course you would review your reserve cash flow and look at a 30- to 90-day waiting period.
What constitutes a disability? Some policies pay benefits if you cannot perform the basic duties of your own occupation, while others pay benefits only if you can't work in any occupation. Consider this point carefully, as work in another profession may pay you less than your current occupation. Also consider whether your insurance pays partial benefits when you can't return to work full-time, but can put in some part-time hours.
What else do I need to know? Make sure that your coverage cannot be cancelled and will always be renewed unless you stop premium payments. Many insurers offer a waiver of premium if you become disabled, as well as an inflation protection option at an extra cost. Also check to see how long the benefits will last. The most comprehensive will cover you at least until you're old enough to earn retirement benefits.
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