Why You Need Disability Insurance - Compass Insurance Advisors
  • Estimated reading time: 4 minutes

    This article was originally published on SmartAboutMoney. Contact one of our advisors for more information about disability insurance.

    Why You Need Disability Insurance

    Disability insurance provides a source of income to people who are unable to work due to an accident or illness. Remember that your earning power is one of your greatest financial assets. (Take SAM’s free My Earning Plan course to learn more.)

    Without disability insurance protection, workers and their dependents are “living on the edge,” at risk of losing their homes and investments. If you need disability insurance, take a look at the details:

    • The average disability claim lasts almost 13 months and mortgage foreclosures due to disability occur 16 times as often as they do for death. Yet, more than 40 percent of full-time workers do not have coverage in the event of a short- or long-term disability to protect against a loss of income.
    • Research indicates that one-third of employed Americans will become disabled for at least 90 days at some point in their career. Yet, lack of disability insurance is a common financial error.
    • Adequate disability policies generally need to be purchased individually from an insurance agent. While some employers provide disability coverage, it is generally short-term and may replace only a small portion of a worker’s salary. In addition, if the employer pays for coverage, benefits are taxable.
    • Disability insurance is especially critical for self-employed workers and those who lack the ability to “bank” employer-paid sick leave. Financial experts generally advise purchasing a policy to replace about two-thirds (60 percent to 70 percent) of a worker’s monthly income. Insurance companies usually don’t provide coverage above this or it would discourage people from returning to work.
    • Two key features of disability insurance, that greatly influence its cost, are the definition of disability and the elimination period. “Own occupation” policies are more expensive because they kick in when you are unable to perform duties of the job for which you are trained — which means, even if you’re still able to do other types of jobs, but you are not able to do your chosen profession, then you can collect on the disability insurance. On the other hand, “any occupation” coverage defines disability as the inability to do any type of work. Many insurers also offer “split definition” policies that use an “own occupation” definition for several years, followed by an “any occupation” definition later on.
    • The elimination (waiting) period is the number of days after a disability begins before benefits are paid. The longer the elimination period (for example, 90 days versus 30 days), the lower the premium for a specified amount (for example, $1,500 a month) of disability insurance.
    • Read the fine print. Look for a disability insurance policy that is non-cancelable or guaranteed renewable and pays residual benefits to make up for lost income when a worker is unable to work at full capacity. For example, if an insured person goes back to work three days a week at 60 percent of full pay, the benefit would be prorated to reflect the actual amount of income lost.
    • Review the recurrent disability clause that describes what happens if an insured person becomes disabled again from a preexisting disability. For example, if someone becomes disabled again from the same cause, say, within six months of returning to work, they may not have to wait for another elimination period.
    • Consider purchasing a cost-of-living rider to protect the purchasing power of monthly benefits. Also check provisions related to disability benefits provided by an employer disability policy or Social Security. Sometimes income from these sources will be considered part of the policy benefit.
    • Consider purchasing a policy for the remainder of your working life (until age 65, for example).
    • Work with an independent insurance agent to shop around among competing carriers.
    • If you are unable to qualify for disability insurance at an affordable price consider investing the amount that you would have paid monthly for premiums, to build up your emergency reserves.
    • In a divorce decree, require an ex-spouse to purchase and maintain disability insurance if you are dependent on his or her income for support payments.
  • Leave a Reply

    Your email address will not be published. Required fields are marked *

Need Help?

Speak To A Certified Compass Agent Today!

(801)901-3519

Monday - Friday 8:00 am - 9:00 PM


Or Find Affordable Insurance Plans

Related Articles

Dynamic Blog Short Description

  • Medicare Part D Notices Are Due Before Oct. 15, 2021

    Medicare Part D Notices Each year, Medicare Part D requires group health plan sponsors to disclose to individuals who are eligible for Medicare Part D and to the Centers for Medicare and Medicaid Services (CMS) whether the health plan’s prescription drug coverage is creditable. Plan sponsor

    Read More
  • Health Insurance and Pregnancy

    Services for Pregnant Women or Women Who may Become Pregnant Breastfeeding support and counseling from trained providers, and access to breastfeeding supplies, for pregnant and nursing women.Breast feeding support, counseling and equipment for the duration of breast feedingCoverage for pumps an

    Read More
  • Medicare Part C/Medicare Advantage

    What is Medicare Part C? Medicare Part C, also known as Medicare Advantage, is a collection of health plan options with approved Medicare benefits offered by private companies. Medicare Part C is available in many areas of the country.  The premium for Medicare Part C is not based on hea

    Read More
  • Critical Illness Policies Explained

    Critical illness coverage is a supplemental insurance policy that pays a lump sum check for a diagnosis of a critical illness. This is a great option to add to your health insurance, whether you’re covered in the private market, through an employer health insurance plan, or even Medicare. The

    Read More
  • Preparing for Open Enrollment With a Hybrid Workforce

    With open enrollment season approaching, now’s the time for HR professionals to kick off their planning. Due to the pandemic—and employees’ desire for flexibility—many employers now find themselves with a workforce on a hybrid schedule. It’s imperative they make appropriate adjustments to

    Read More
  • Why Work with a Local Broker

    There are many benefits of working with a local health insurance broker. Give us a call or find an agent near you HERE. No Extra Costs - The price of your health insurance plan is legally regulated, so you will find the same premium no matter where you shop. Working with a Compass advisor means

    Read More
  • Medicare Part A FAQ

    What is Medicare Part A? Medicare Part A is hospital insurance for in-patient services.  Three groups of people are eligible for Medicare Part A:  people 65 years and olderpeople under 65 years with certain disabilitiesand people of any age with End-Stage Renal Disease. 

    Read More
  • What is the Difference Between a Health Insurance Agent, Broker, and Advisor?

    This is a common question we hear from our clients.  While it is true that often these terms are used interchangeably, let’s discuss some key differences in approaches taken by health insurance professionals when working with clients. Agent – A person or business authorized to act on anothe

    Read More
  • How Obamacare Works

    How Obamacare Works I want to begin by helping you understand one of the most misunderstood words in health insurance, "Obamacare." The government has done a great job in promoting Obamacare in that if you haven't ever heard the term then you were probably one of the crew members aboard the S.S.

    Read More

What Others Say About Us

Our Customers Love Us

Let Us Help You Find A Health Insurance Plan

No Extra Cost. Professional Guidance. Quick Analysis. Complete Protection. Simplified Enrollment. Personalized. Support.