The Social Security Administration has found that more than one in four adults will be disabled before reaching retirement age. The statistics further prove that about 1 in every 8 workers are disabled for the long term. And 90% of long-term disabilities are caused by illnesses. If so, disability insurance should be talked about more often.
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What is Disability Insurance?
Disability Insurance or Disability income insurance is an insurance policy that pays benefits to disabled persons unable to work because of their disability. Disability insurance provides a percentage of an individual’s regular income per month to protect that individual from financial loss caused by disability.
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What does disability insurance pay for?
Disability insurance does not pay benefits for your disability; however, it protects a percentage of your income and provides you financial support in the event of a disability. Disabilities result from illness and injury inflicted on a working-class individual, not necessarily during work hours.
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What conditions or diagnosis qualify you for a disability insurance
Certain conditions qualify an individual for disability insurance. Short-term disability insurance, for example, is usually obtained as a group insurance plan for employees under their workplace, even though there are still certain conditions that need to be met before an individual can receive benefits from his insurance company. Medical Conditions vary, and the severity of each is dependent on the type of illness or injury inflicted on an individual.
Injuries or illnesses qualified for disability insurance are listed as such;
- Kidney diseases
- Brain Injury
- Musculoskeletal disorders
- Liver diseases
- Sensory disorders
- Respiratory disorders
- Cardiovascular disorders
- Digestive system disorders (e.g., inflammatory bowel disease, liver dysfunction)
- Genitourinary disorders
- Hematological disorders
- Skin disorders
- Endocrine disorders
- Congenital disorders that affect multiple body systems
- Neurological disorders
- Mental disorders
- Cancer
- Immune system disorders.
NB: It is important to note that some of these illnesses or injuries may result from accidents.
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Types of Disability Insurance
Disability insurance is of two types, and it includes;
| Short-term disability insurance | Long-term disability insurance |
| It covers for a short period, and is for illnesses and injuries that heal over a short time. | It covers for a long period, and is for severe illnesses and injuries. |
| Covers events that span from a few weeks to months. For example, minor accidents, illnesses, and so on. | Covers events that span for years or life-long. For example; amputation, terminal diseases and so on. |
| Waiting period spans from zero to fourteen days | Individuals receive short-term benefits during the waiting period, before long-term benefits kick in. |
| STDs are usually under grouped insurance plan for employees. | Long term benefits are customizable. |
NB: STDs and LTD can be used together – not concurrently- for both temporary and permanent disabilities.
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How does disability insurance work
12 Things to consider about Disability Income Insurance;
- Disability insurance is paid benefits that depend on your annual or monthly income.
- DI benefits are different from social security benefits, but are paid in addition to them.
- Not all insurance companies provide extended benefit plans that span more than 10 years. The few ones that do, charge higher premiums.
- Not all Disability Insurance have the same coverage plan. Discuss with your employer or your insurance company to know what type of disability insurance to purchase
- The only way to cancel your policy is to stop paying premiums.
- Waiting periods( period of disability before benefit payments) are compulsory and they depend on your employer and insurance company
- Shorter waiting periods mean a higher premium.
- Not all policies provide job protection
- Disability Insurance is not mandatory like coverage policies.
- Disability insurance benefit payments are affected by inflation.
- Disability benefits are about 50%- 80% of your monthly income before disability.
- Disability insurance is different from Social security insurance. Though they both pay disability benefits, but the latter is strictly for total disabilities that are more severe.
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Factors that determine the cost of Disability Insurance
- Age: The 2010 statistics show that about 21.4 million people from age 16 to 64 in the U.S. have a severe disability that limits or prevents them from working. Also, about 70% of these 21.4 million persons fall between ages 35-60. Thus, a younger worker is unlikely to be disabled –unless otherwise stated- and is consequently charged a lower premium. This is not how it works for older workers.
- Gender: Statistics have shown that women are more likely to face disabilities than men. Then there’s pregnancy, which is not a disability in itself but allows a woman receive maternal benefits from her DI Insurance. These reasons may be why an insurance company charge higher premiums based on gender.
- Lifestyle: There are certain lifestyles that increase the chances of an individual being disabled. A smoker or an alcoholic for example is at a higher risk of disability. For this reason, an insurance company will charge higher premiums for individuals with a not-so-healthy lifestyle.
- Health history: Before you can purchase disability insurance, you may need to provide your insurance company your medical records. If your medical records present you as a disabled or potentially disabled person, then you are more likely to pay higher premiums.
- Income/ career classification: Your income or career classification also affects the amount of premium you pay for disability insurance. For example, an on-site building architect will pay a higher premium than a school teacher whose likelihood of being disabled from work is on the high side.
- Level of disability: Level of disability is characterized by two definitions. Each definition has its own variation depending on your insurance company.
- Own Occupation Definition: This is also related to partial disability, where the disabled person is still able to perform some (not all) his occupational duties due to restrictions caused by disability. The premium paid for this level of disability is lesser when compared to full disability
- Any Occupation Definition: This is related to full disability, where the disabled person is unable to perform any of his or her occupational duties. Benefits are defined under own occupation at first before changing to Any occupation
- Disability insurance span: Short-term disabilities cost less than Long-term disabilities
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References
- Julia Kagan, Chip Stapelton, Yarilet Perez, (2021, September 23) Disability income insurance: Definition. Retrieved from https://www.investopedia.com
- NEA Member benefits, (2022) 5 factors that affect disability insurance, benefits level and coverage. Retrieved from https://www.neamb.com
- The Guardian life Insurance company (2022) What does disability insurance cover. https://www.guardianlife.com
- Farmer and Morris Law PLLC, (2022) what conditions qualify you for disability. Retrieved from https://www.farmermorris.com