Buying an individual disability insurance policy could make sense if your employer does not offer coverage, if the disability coverage offered through your employer is limited, or you are self-employed. Employer-sponsored [group] disability insurance usually pays only a portion of your base salary, up to a cap. It is a good idea to supplement your existing group coverage if:
Short-Term VS. Long-Term Disability coverage
There are two main types of disability insurance — short-term and long-term coverage. Both replace a portion of your monthly base salary up to a cap, such as $10,000, during disability. Some long-term policies pay for additional services, such as training to return to the workforce.
Advantages of Individual Coverage
Buying your own policy allows you to:
Customize your coverage by selecting extra features (a/k/a “riders”) such as such as Future Increase Options that allow for increases in coverage as your income grows. The younger you are when you purchase your policy, the more valuable such riders will be to you.
Choose an insurance company with the best offerings for the terms most important to you.
Keep the coverage when you change jobs. Group disability coverage ends when you leave an employer who is paying the premiums for your disability insurance.
Maintain and control the disability insurance. Individual disability coverage stays intact as long as you pay premiums. In contrast, an employer can decide to change or stop offering group disability coverage as part of its benefit package.
Collect benefits tax-free if you become disabled. If the employer pays for the coverage, you must pay taxes on the benefits.
Cost of Insurance
Insurers set their premiums using claims data associated with a variety of factors that make up the applicant’s profile. Your profile will determine the cost of your coverage and includes:
While most terms of a disability contract are standard, riders allow you to tailor your coverage to address risks such as inflation or residual injury.
Without some type of protection, inflation can seriously erode the purchasing power of your long-term disability benefits. Three common disability insurance riders help minimize the risk of inflation by increasing your coverage over time.
A large percentage of claims start or end as a partial or residual injury affecting the number of hours the insured is able to work, the duties the insured is able to complete, and therefore the income the insured is able to earn. The Residual Benefit Rider pays you a partial benefit in the event you suffer a partial disability or do not recover fully from a disability. The percentage of your benefit paid is typically proportionate to your loss of income. This feature commonly triggers a benefit at 20% loss of Income due to illness or injury.
We rely on insurance to protect various aspects of our financial lives, so policy guarantees are important. There are three types of renewability options for disability insurance, but there is only one safe choice: Non-cancellable Guaranteed Renewable.
Checklist for Reviewing Disability Policy Features
© Copyright 2020 | Shamrock Wealth Management | All Rights Reserved