Tuesday, April 28, 2015

Disability Insurance: Why do you need it?

Injuries, long-term illness and accidents are a reality in any profession. It’s believed that in the US alone, a disability-causing accident, on an average,happens every second. Further, as much as 18.5% of the working American population, suffers from some form of disability that hinders their them from working. It is estimated thatnearly 25% of theworkforce in the US is likely to suffer from an accident, injury or illness that could disrupt their working life, wellbefore they are due toretire.

To offset this predicament, Insurance companies offer Disability Income Insurance (DII or just Disability Insurance) plan. DIIinsures the beneficiary’s core income against disabilities that will prevent him/her from undertaking the core functions of his/her work.

Contrary to expectations, most Americans are either unaware of or are not subscribed to any form of disability insurance, which would cover them adequately.

In September 2012, the Consumer Federation of America and Unum, an insurance company released a report that revealed some alarming facts. Among 400 disability insurance recipients surveyed: (source: US News Money)
  • As much as 85 percent said they had to stop saving money for retirement or cut back in other ways
  • As much as 60 percent said they had to skip or delay some kind of medical, dental or vision care for themselves or family members
  • As much as 40 percent missed a mortgage or rent payment
  • As much as 50 percent said they would have missed a payment if they hadn't received their disability insurance benefits
  • Nearly 33 percent reported seeking community or government assistance to pay for food
Disability insurance is an optional feature, and thousands of Americans face the risk of financial hardship by not having adequate disability insurance. To circumvent this calamity, the Federal Government has created a safety net, through the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) which are a part of Social Security benefit scheme, and this helps all those who are uninsured or underinsured.

Some of the broader types of Disability Insurance are:
  • Individual disability insurance: Individuals working at companies that do not provide benefits, and individuals who run their own businesses generally prefer this type of disability insurance. If you seek higher monthly benefits, the premiums are higher, but the advantage with this method is that benefits are available for a longer duration. Also, the benefits are paid shortly after the claim for disability is made.
  • Disability insurance with a high-limit: In addition to standard coverage, you can go in for a high-limit disability insurance which covers nearly 65% of your income. You can claim additional benefits to the tune of USD 2000 at the minimum to a whopping USD 10,000, in a month.
  • Business overhead expense disability insurance: All those items that are tax deductible under business expenses are covered by Business Overhead Expense (BOE). Some of these expense items are mortgage payments, insurance premiums, maintenance costs, etc.
  • Workers' compensation: Workers' compensation is also an option whereby dependents of workers killed during employment receive benefits. However, workers compensation provides no coverage to those who were injured outside the line of work.
At the time of subscribing to disability Insurance, the following factors need to be considered and should be covered:
  • Non-cancelable and guaranteed renewable policy
  • Elimination periods and waiting periods
  • Own occupation coverage
  • Future purchase optionWhes
  • Cost of living adjustments
  • Retirement protection and lifetime benefits
There are complexities involved, which can be clarified on contacting an experienced insurance company broker or agent. When the odds of becoming disabled due to accidents, injury or other unforeseen incidents are very likely, disability insurance will be a safe fall back.

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