The Facts

• Disability Insurance, or DI, is a type of health insurance that pays a monthly income to the policyholder when he or she is unable to work because of an illness or accident. The chances of becoming disabled are not low risk. A 20-year-old worker has a 3-in-10 chance of becoming disabled before reaching retirement age. According the American Council of Life Insurers, one-third of Americans age 35 to 65 will become disabled for more than 90 days and 1 in 7 for more than five years.
  
  

Benefits

• DI gives the insured the peace of mind knowing that if they are unable to work for a period of time, they will still be able to keep their financial goals in order. Receiving payments can lessen the burden of your spouse to pay all the bills while taking care of the things that you would normally do. If you are permanently unable to work, you can be covered until you are scheduled to retire if you purchased a permanent DI plan. You will also receive your benefits tax free if you are paying for your plan out of pocket.
  
  

Types

• The two main types of disability plans are short term and long term. Short term can start the instant you are sick or injured and last for several days to two months. There may not be a waiting period associated with a short DI plan. These plans are normally offered by employers and are required by law in some states. A long-term DI plan can last for two years up to age 65 or 70. The elimination period may be 30 to 90 days long depending on the company. The elimination period is the time between the onset of a disability and the time you are eligible for benefits. Unfortunately, these plans are not required by law and many are bought individually.
  
  

Features

• DI plans comes with features that can provide broader insurance coverage. A person can buy a waiver of premium, which will stop the premiums payments while the insured is disabled. This will last the entire time of the disability. A transition benefit pays the insured if there is a difference in earnings from before they were disabled until coming back for one year. There are two plan definitions such as own occupation and any occupation that will impact your DI coverage. Own occupation means an insured can collect benefits if they are not able to do the job that they were doing before they were disabled. Any occupation only pays if you can't do any job in which you are qualified. A policy may be guaranteed renewable meaning that the insurance company cannot cancel or change your coverage if timely payments are made. Also your plan can be non-cancelable which means that the insurer cannot change the terms of your coverage without your consent. Only the premiums can be altered.
  
  

Considerations

• An insurance company considers many factors when it comes to disability insurance that may provide an applicant with lower or higher premiums amounts than normal, or prevent them from getting coverage altogether. Aside from your health information, another determining factor will be the type of work you do. Although it may seem that the more hazardous job description will lead to higher premiums, it is in fact the history of claims that a job or industry files that will result in higher or lower costs. For example, a healthy person may pay higher premiums if they work in an administrative position than a healthy person who works in construction because records indicate that office personnel are prone to get hurt more and file more claims regardless of the severity of the injury.
  
  

Misconceptions

• Although the concept of insurance is to make someone or something whole again, DI does not follow this protocol. Disability insurance will only pay a percentage, usually up to 80 percent of your gross income while you were able to work. This prevents a person from having a "lingering" condition and not having an incentive of getting back to work. You may decide to buy supplemental disability coverage to provide more income in addition to your DI plan.
  
  

Social Security Disability

• A person may be eligible to receive disability income through Social Security. To qualify, a person must have worked for jobs that were covered by the agency, meet their definition of disabled and it must be determined that the disability will last for a year or more. A monthly benefit will be sent to those who have satisfied these conditions and the amount will be determined by the applicant's lifetime earnings covered by Social Security.