Everyone is susceptible to losing income due to a sudden injury or illness, which is why disability insurance can, literally, be a lifesaver. Disability insurance prevents an individual facing a long-term disability from falling into financial ruin.
Here are five of the most common questions about disability insurance:
How Much does Disability Insurance Cost?
The cost of disability varies depending on many factors, but paying 1% – 3% of your annual income is the generally accepted estimate. For example, if you earn $100,000 per year, you can expect to spend between $1000 and $3,000 per year depending on age, occupation, and the level of benefits.
Age and occupation are important factors in determining the cost. Older people have higher premiums—which is a good reason to get locked into a rate while you’re young. If your occupation puts you at more risk for injury (e.g. construction worker), your premiums will also be more expensive.
What Type of Injuries and Illnesses does Disability Insurance Cover?
Disability insurance covers anything that prevents you from doing the regular duties associated with your occupation. This includes both long-term and short-term disability and illness.
Some examples that would prevent you from performing your job include:
- Heart attack, coronary artery disease, stroke
- Chronic back pain
- Disabling injury
- Mental disorder
- Complications due to childbirth
How Long does it Take for Benefits to be Paid?
Disabled individuals must file a “proof of loss” after a claim occurs—usually 60 to 90 days after the claim occurs. This is a formal declaration by the insured so the insurance company can determine liability under its policy.
Is Disability Insurance different from Workers’ Comp?
Yes. The difference is that workers’ comp is only available if you are injured on the work site, performing duties associated with your job. Your employer pays into workers’ compensation insurance, much like how they pay sick leave or pay into unemployment insurance. However, most workers’ comp doesn’t cover the full amount of a lost paycheck.
Disability insurance, on the other hand, covers injury and illness incurred in or out of the workplace, and it offers much more customization and flexibility than workers’ comp.
How Much will a Disability Policy Pay Me in the event of a Claim?
Long-term disability insurance pays out a percentage of your earned income. Depending on your policy, this amount typically ranges from 50% to 66% of your monthly earnings.
Some policies include a cost of living adjustment, which will increase the amount 1%-6% each year to keep up with inflation.
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