Definition of Disability Insurance

Disability insurance can help you recover any lost income from an illness or accident and can be used in your financial planning along with other types of insurance and retirement investment vehicles. With income replacement its top priority, disability insurance can show your family that you truly care about their future.

Function

Disability insurance is used to help you replace lost income in instances when you are not able to work due to illness or accident. Although this insurance exists in individual or group form, its function is to replace said income up to a certain percentage. In the case of group coverage, it is usually about 60 percent of your income and in an individual policy it can be as high as 80 percent.

Considerations

There are a few factors to consider when purchasing disability insurance. Since insurance is based on risk factors to determine your premium, you must weigh several options. Group disability insurance is far less expensive, but the coverage is usually less than that of an individual policy. Depending on your health, you may also pay a higher premium as it is more likely that you will need to use the insurance if you are in poor health, thus driving costs upward.

Categories

There are two main categories of disabilities. There are short-term disabilities that last between six months and one year, and long-term disabilities that range from two years up until age 65. Both have elimination periods where no benefits are paid. The longer the elimination period, the lower the premiums.

Types

There is more than one type of disability that is used for classification. Total disability is when an individual is unable to perform his duties at work and he will remain this way for the entire elimination period. Presumptive disability is when an individual is severely disabled but can still work. Blindness, deafness and the loss of at least two limbs fall under this category. Partial disability is when you are only able to perform a portion of your previous workload, and recurrent is when the same disability occurs within six months.

Benefits

The benefits of disability insurance are that you are able to keep an income while recovering from an accident or illness. Although it is only a portion of your income, this can help you meet some of the financial obligations that you presently have. The reason it does not cover you 100 percent is because the company wants you to be motivated and return to work when you are fully recovered.