Disability Insurance – How It Protects Your Income
Disability insurance is essential if you depend on your income for support. It’s especially important for married couples, as a spouse can provide a second source of income if the other is unable to work. However, single workers are less likely to have a second source of income. This means that more people need disability income insurance. For example, a single worker with three young children has a higher need for disability insurance than a married woman.
Long-Term Disability Insurance
A long-term disability policy protects your income if you cannot work for more than six months. The insurance pays a percentage of your income in the event of your disability. This amount can be as much as 60% of your salary. The coverage amount is calculated by applying financial underwriting and based on the income you would earn if you were disabled. This amount does not include investment income or business income.
Long-term disability insurance may be purchased from several different companies. Many offer group disability insurance and may pay a portion of the premiums. Individuals can also purchase individual policies from a reputable insurance company. However, group long-term disability coverage is often less expensive than an individual policy. Most companies will offer a discounted group rate for many employees.
Individual Disability Insurance
If you’re a working person and you want to protect your income, you need to buy an individual disability insurance policy. This type of insurance can be purchased from an insurance company or an independent agent. Once you buy the policy, you own it for as long as you continue to pay the premiums. The great thing about individual disability insurance is that the premiums are usually fixed and don’t change unless you need more coverage. Additionally, the coverage stays with you, even if you change jobs.
One type of individual disability insurance covers up to 80 percent of your income. Individual disability insurance can be purchased separately or added to an existing group policy. In addition to providing additional income protection, individual disability insurance also offers higher benefits. In many cases, a private long-term disability insurance plan will cover as much as 80 percent of your income, which will greatly help your family during a difficult time.
Group Disability Insurance
If you are an employee in an organization that offers group disability insurance, you will be covered if you become disabled and unable to work. Most employers pay for this insurance in full, and you will only be responsible for paying a portion of the premium. However, if you are not an employee in an organization that offers group disability coverage, you can still purchase a policy to protect your income if you become disabled.
It will help if you are looking for a policy that offers guaranteed issues for pre-existing conditions. This is because group disability policies may not cover pre-existing conditions until a certain period has passed. Furthermore, an individual policy has a more complicated claim process than a group policy. It’s also best if the policy contains a more accurate definition of disability.
Guaranteed Renewable Disability Insurance
A guaranteed renewable disability insurance policy guarantees the same benefits for as long as you live. This type of policy cannot be canceled or modified for any reason except that the insurer can increase premiums for all policyholders in the same risk class. The only difference between a guaranteed and optionally renewable policy is the waiting period, which is the time it takes to start receiving benefits. A shorter waiting period will cost less, but a longer one is more expensive.
A guaranteed renewable disability insurance policy will protect your income until you reach age 65. This type of policy is typically only available to individuals who hold managerial or professional occupations. However, it is sometimes available to skilled craft workers. While guaranteed renewable policies offer the best protection, they also tend to have the highest premiums.
Tax Implications of Disability Insurance
Employer-provided disability insurance benefits have tax implications. The premiums you pay are not taxable, but the benefits you receive are. Disability insurance benefits are taxed differently depending on whether you paid the premiums pre-tax.
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