Disability Insurance Information
A long-term disability can be financially devastating. Disability insurance can replace a portion of your income if you are unable to work because of sickness or injury. Disability insurance is complex; individuals should carefully consider the available options. A disability insurance policy's language, features, and riders affect how and when the policy will pay in the event of a claim.
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Function
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Disability insurance pays in the event the insured is unable to work because of sickness or injury. The policy's definition of disability is crucial; the definition is the basis on which payment of claims is determined. Applicants should compare policy definitions from several insurers, determining how disability is defined. Will the policy pay for partial disability? Are there any exclusions? By carefully examining the policy's definition of disability, the applicant can position herself to make an informed purchase decision.
Types
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Disability insurance is offered as group plans through employers or organizations, and as individual policies. Disability insurance policies can cover short-term disabilities, long-term disabilities, or both. Generally, short-term disabilities are those lasting less than one year; long-term disabilities last one year or longer.
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Considerations
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Each policy defines a benefit level the insured person will receive in the event of a qualified disability. Benefits are frequently specified in monthly amounts. Not everyone has coverage through work; for those who do, employer benefits generally do not replace more than 60 percent of a worker's income. Individual policies can supplement existing benefits.
Waiting Period
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The policy's waiting period is the time between when a disability occurs and benefits begin. The longer the waiting period, the longer you must wait to receive benefits. Individuals with several months of expenses in savings may be able to pay their own expenses for the first few months of a disability, allowing them to have a longer policy waiting period. Policies with shorter waiting periods are more expensive.
Riders
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Disability insurance policies have many riders available. Riders include cost-of-living riders, social benefits waiver riders, gradual recovery benefits, and supplemental disability riders. Some riders are only appropriate in limited situations. For example, an individual close to retirement may not need a cost-of-living rider.
Benefit Period
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The benefit period is how long the policy will pay for. Policies with longer benefit periods are more expensive. Benefit periods for long-term disability policies can be as short as one year. Some policies pay until the insured person turns 65.
Taxation
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Taxation is another important aspect of disability insurance. Benefits from a disability insurance policy that you pay for are not taxed; benefits from policies paid for by your employer are taxed. Paying your own disability insurance premiums results in a higher net benefit, as the benefit is not eroded by income taxes.
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