What if a person asked you, “What is your most valuable asset,” would your response be, “My home,” “my vehicle,” “my collection of art” or “my prized boat?” Reaching a point in life at which you have attained these things is great, however, would it be possible for you to have attained any of these things without the most valuable asset that you have – your ability to earn an income? Disability insurance coverage will protect your most valuable asset.
Using data collected by the Social Security Administration, one out every four 20-year-olds will become disabled at some point in life. If that fact isn’t startling enough, roughly 43 percent of all individuals age 40 will have some form of long-term disability event before they reach the age of 65, according to the JHA Disability Fact Book. By keeping these statistical facts in mind, it stands to reason that taking all necessary precautions to protect your primary source of income would be one of the most important financial planning decisions that an individual could possibly make. This is where disability insurance coverage is considered vital to protecting your income.
Who Needs It?
A serious discussion about how important of a precaution Disability Insurance coverage (DI) can be is not a conversation that many individuals are interested in having. This is a very unpleasant topic for most, as it has a stigma surrounding it that is akin to life insurance. When things are going well in life, it is quite difficult for most individuals to begin to fathom a time when they would be unable to work and earn a living. The vast majority of people feel that “it will never happen to me.” Because of this mentality, most Americans fail to seek the necessary protection to ensure that, in the event tragedy was to strike, they would still be able to afford a lifestyle somewhat similar to their current situation.
AmericanPayroll.org has reported that an estimated 68 percent of the American population transition from one pay period to the next with no remaining income after expenses and would be forced into a financial bind in the event that their primary source of income was to be delayed a mere week. These statistics present a very foreboding picture of exactly how ill-prepared the vast majority of Americans are in the event of even the slightest financial misstep. This is where disability insurance can begin to play a key role in any quality financial plan.
Disability Insurance coverage is designed to compensate for the income deficit that remains when short-term disability (which is easily attained in the form of “sick leave” from the employer) is exhausted, providing peace of mind for a longer term paycheck.
Group versus Individual
Disability Insurance coverage can be purchased in two specific ways: group and individual. The manner in which the policies are available are based on occupation and how much you receive in income. Professionals such as doctors and lawyers will have access to much higher tier policies. It is not unheard of for an individual to purchase a group policy at work, and then purchase an additional individual policy to ensure that they are adequately covered.
Group disability is purchased through your place of employment. This type of DI offers an income replacement rate up to 60 percent of your wages, to a maximum of $5,000 to $15,000 as a taxable amount. This may vary depending on the different criteria at a given company. There are benefits to individual policy types that can be more attractive to some than a traditional group plan. For example, group policies cannot go with you in the event you leave the company, usually offer a 90-day elimination period to age 65 or Social Security age. And these policies can be canceled by the insurance company at any time.
Although the easiest manner in which to obtain a disability policy, group DI policies are not always the best value. In some instances, an individual policy will serve more of an individual’s needs, as opposed to a group plan. Individual disability policies allow you to take your benefits with you in the event you ever leave the company and will usually allow you to get 60 to 65 percent of your income as a benefit in the event you become disabled.
Another benefit to purchasing an individual disability plan is that, unlike the group plan which is taxed (if the company pays the premiums), the individual policies are not taxed when a benefit is paid out. Also keep in mind, individual policies can be purchased with a better occupation definition and cannot be canceled by the company for any reason, and the company does not have the ability to nonrenew the policy for any reason. This is a key difference that will not matter in a group policy, however, could be vitally important when deciding to go with an individual policy.
Don’t Make the Mistake of Relying on Social Security Disability
Millions of Americans think Social Security Disability Insurance (SSDI) will be enough of a benefit to sustain them in their time of need in the event of an accident. However, this may not be the case. The qualification process for Social Security benefits and the ability to receive payments from said program can take up to two years to complete. Furthermore, the vast majority of initial applications are denied. In order to receive SSDI, you must wait a mandatory five months after your onset date of your qualifying event. This date is the date in which you filed your disability application initially.
The applicant also must be unable to do any type of job. Another obstacle that some face when applying for SSDI is that applicants need to have accumulated enough work credits in order to qualify. In the event you do qualify for SSDI and receive a benefit payout, your current group DI provider will reduce your award to be equivalent to your SSDI benefit because otherwise this would be considered “double dipping” and this is not allowed with most group DI insurance policies.
All things being considered, having any disability coverage is far better than going without coverage. Doing whatever it takes to protect your most valuable asset, your paycheck is by far the best decision you can make for yourself and your family. Once you have taken a look at all the statistics that accompany the topic of disability insurance, it is easy to see how great of a need there is for these great products in the marketplace.