DISABILITY INSURANCE

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Note: Any reference to the word guarantee is based on the claims paying ability of the underlying insurance company.

U.S. Census Bureau figures show that nearly one in five Americans will become disabled for a year or more before age 65. Long-term disability insurance replaces lost wages due to illness or injury.

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.

Types of Coverage:

  • Social Security:
    Social Security does not just provide for retirement income but disability income as well
    • In 2009, the average monthly payment for a disabled worker was $1064; the average monthly payment for a family of a male disabled worker, young spouse and 2 or more children was $1670. See SSI Fact Sheet
    • Eligibility is based on being unable to perform any gainful employment.See SSDI Disability Planner • You are eligible for benefits after you have been disabled for 5 months and if the disability is expected to last 12 months. See Waiting Period Question
    • Social Security disability payments are subject to federal income tax if your income exceeds $25,000 individually or $32,000 jointly. See Tax Question Workers Compensation Most employers are required to provide this coverage. The amount and duration varies by state.
  • Workers Compensation
    only pays if the disability occurs on the job, and usually lasts for only a few years and the payments are low. Individual Policies For individual policies, the applicant needs to qualify and go through an underwriting process, similar to the process required for life insurance. The applicant could be subject to a higher premium or even be declined based on his or her occupation, medical history, or lifestyle.
    • Individual policies are usually purchased by high income professionals because of the cost.
  • Group Policies
    Some states require employers to carry group disability insurance anywhere from 26 to 52 weeks.
  • Group Long Term Disability (LTD)
    Group LTD is carried by almost half of mid-size to large employers and provides long term benefits for at least 5 years covering about 60% of salary. The premium is usually very low, does not require proof of insurability, and often is fully paid by the employer.

If you would like to get a Disability Insurance Quote click here.

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