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What is Disability (Income) Insurance

By Jim Antonilli
Filed under: Disability         Words in this Post: 368



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Disability insurance is nothing more than income insurance. It insures your income if something happens to you and you cannot work. Simply put, you are insuring your ability to get up every morning, go to work, and earn an income.

If you couldn’t work, how would you pay your bills, buy food, and pay your rent or mortgage? A lot of people mistakenly think the government will take care of this if they become disabled. This used to be more true than it is today. In the mid 1990s, the Social Security Administration severely tightened the rules on disability claims. Before then almost 90 percent of all disability claims were granted. After the rules were changed, that percentage dropped to under 50 percent. Also, you have to be totally disabled for one year before you can apply for benefits. After you apply, it can take the SSA up to six months to adjudicate your case and begin paying benefits.

Disability insurance is sold in increments that reflect a percentage of your monthly income. Typical percentages are 50 percent, 60 percent, and 66 percent. You can buy short to medium term policies with durations of 2, 3, or 5 years or you can purchase a permanent policy that will pay benefits until age 67 or even 70. You can also select an elimination period—a waiting period until benefits kick in. All of these factors affect the cost. For example, a policy with a 180-day waiting (elimination) period will cost significantly less than a policy with a 60-day waiting period. If you have enough savings to get through a six month disability, selecting a 180-day elimination period will significantly reduce your costs.

Disability insurance can be expensive. If you live in a state, such as California, that offers a state disability program, you might want to take advantage of that for part of your disability coverage. As an owner or officer of a small corporation you do not have to participate in state disability programs, but you are usually eligible to. Whether you get state or private insurance, one thing must be considered  that if you are categorized as a white collar occupation, you tend to have lower rates than blue collar jobs.

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Author: Jim Antonilli

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