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Disability Coverage

Disability coverage!!! Let’s face it, 

Nobody likes to think about what life would look like should disability strike

But the reality is one third of all Americans between the ages 35 and 65 will become disabled for more than 90 days, according to the American Council of Life Insurers. One in seven workers will be disabled for more than five years. And while many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are actually due to illnesses, such as cancer and heart disease. The loss of income can be so devastating that it forces some people to foreclose on their home or even declare bankruptcy.

Disability insurance replaces a portion of your income if you become disabled and are no longer able to work. A typical group plan offered by an employer will replace up to 60% of your salary. Supplemental plans and individual policies will often cover up to 70% or 80%. (No plan will cover all of your salary for fear you will have little or no incentive to get back to work.) Benefits typically last for a set number of years (say five years) or until you reach retirement age. (Benefits typically stop around retirement age since once you retire, you would no longer be dependent on the income you generated by working, anyway.) If you pay the premium out-of-pocket meaning your employer doesn’t cover the tab benefits are tax free.

Long term disability policies vary greatly. While some are iron-clad and pay benefits when you need them, others have more holes than a pasta strainer. People trying to save some money with a leaner plan may find it ultimately worthless. Typically, the cheaper plans have very strict definitions of disability, making it difficult to claim benefits over many years.

Below we’ll discuss the difference between group and individual policies. Think you can stop reading because you’ve got a solid policy through work? Wrong. You may still want to purchase additional insurance on your own. Here’s what you need to know.

Individual/Personal Disability

This is an insurance product designed to replace anywhere from 45% to 60% of your gross income on a tax free basis should you get sick or any illness prevent you from earning an income in your occupation. Insurance policies from every insurance company are quite different. This is not a product to shop for the most competitive rate. Instead, the features of the policy should be your main concern. Shopping for the most inexpensive plan may result in a waste of your money. Even though a definition of disability exists, all policies define disability according to how an illness or injury affects an individual’s ability to perform his or her job.

There are three types of Personal Disability Insurance:


Business Disability Insurance

Business Disability Insurance for Large & Small Companies

A good, productive employee is an asset to any company. Providing your employees with business disability insurance can help protect your business, by attracting and keeping good employees.

Business group disability insurance is coverage that provides employees with a percentage of their income(usually 60% to 66.5%) in the event that they become disabled because of a non-work-related illness or injury. By providing them with coverage that will pay them part of their salary when they are temporarily disabled, you allow them to recover without the added burden of struggling to pay their bills and support their families.

Group disability insurance helps the bottom line of a business by providing peace of mine for your employees by avoiding and reducing expenses for salary continuation, etc. Most of the time plans with 10 or more enrollees are not medically underwritten. These groups are much less expensive than individual plans.

A small business has specific types of disability insurance that must be considered. If you own your own business or have a partner, disability insurance should be included in your insurance portfolio.

The following are four type of plans that any small business owner should obtain based on their specific needs.

  • Professional Disability Income Insurance: Protects your personal income and is intended to help you meet your daily living expenses.
  • Business Overhead: It provides funds to take care of business expenses such as taxes, staff salaries, rent, and many other business overhead expenses.
  • Disability Buyout: If you have a partner, this plan drafts a buy-sell agreement that details the actions to be taken in the event that one or more partners become unable to work. These agreements even mention what action would be taken if one of the partners should die.
  • Key Person Insurance: Many small businesses have one person on which the success of the company depends on. This could be a partner or an employee. This type of insurance pays the benefit to the company if such person experiences a disability condition. The funds receive from the insurance company are used to pay any expenses incurred hiring someone to replace the disabled person. This type of contract is owned by the business and not the person insured.

A disability plan that is not often mentioned is a Disability Insurance for Business Loan. In many occasions the bank or a lending institution requires you to have disability insurance before giving you the loan. Many business owners make the mistake of getting personal disability income insurance. Personal disability income insurance should be for the insured to cover his/her mortgage payment, putting food on the table for his/her family or paying his/her own medical bills in the event he/she becomes disabled. Doing this could bring disastrous consequences. Instead, the purchase of a disability insurance for business loan would be the action to take. The disability for business loan, if you become disabled, will make payments on your monthly obligation, and your personal disability income insurance will be able to do what it was purchased for.

When Disability Insurance is a Good Idea

Do you earn income?If so, buying disability insurance is probably a smart thing to do. You’re far more likely to become disabled for six months or more during your working years than to die. In fact, even at age 30, you have a 1 in 5 chance of becoming disabled for a year or more. Even one year without income could be devastating to your finances. At best, you may have to deplete your emergency savings. At worst, you won’t have enough saved up to cover all of your expenses during this time and have to resort to taking on expensive debt. In some cases, a long-term disability can force people into bankruptcy.

For further information regarding any type of disability insurance, or if you have any questions, please fill out the form below or contact us.

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