There are several options you may have when it comes to securing Disability Insurance. If your employer offers coverage as a component of the health & benefits plan available to employees, you could choose to include Disability Insurance.
The other option more and more Americans are taking is purchasing their own disability insurance policy.
Why?
Mostly for tax purposes.
Often when Disability Insurance is provided by an employer sponsored health plan, it’s offered to employees at very little, if any, cost. This is great for your budget, but perhaps not ideal if you actually suffer a disability and need to collect the insurance.
If your disability insurance has been paid for by your employer, the benefits you receive if you need to use your disability insurance are taxable.
Alternatively, if you decided to forego what your employer offers and purchase your own Disability Insurance Policy, you’re very likely using after-tax dollars to buy this protection. Therefore, if you become disabled and need to begin collecting from your disability insurance policy, your benefits are not taxed.
Disability coverage is similar to auto insurance in that you can buy a lot of it or just a little.
How much do you need?
In general, it is recommended that you have enough to replace about 60% to 70% of your pretax income.
Note. If your salary is $5,000 a month, you would need about $3,000 to $3,500 in benefit payments a month from your disability policy. But there are a lot of factors to consider. You should consult with someone experienced in disability insurance to determine how much coverage you need.
There are numerous options for coverage in terms of when it’s available. You can buy disability insurance that pays benefits for just a few months (short-term disability or STD). Or you can buy coverage for many years, possibly even as long as you live (long-term disability or LTD).
Tip. Generally though, disability insurance is best used for longer terms. Buying short-term disability only is equivalent to purchasing auto insurance for just fender-benders. It makes much more sense to insure against a big (long-term) loss of income.
Disability insurance comes with a waiting, or elimination, period. That’s the time between when the injury or illness occurs and when the benefit payments start coming. For LTD, the waiting period ranges from 60 to 180 days. The shorter the waiting period, the more the policy will cost.
If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.