How to Calculate Disability Income Insurance
Calculating how much disability insurance to purchase often proves a difficult task. You need to know not just the amount of coverage, but also the elimination period to chose when you select a disability plan and how long you want to have the policy make payments. Disability insurance is quite costly and the more benefits you receive, the more costly the plan will become.
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Instructions
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Establish how much money you need every month to run your household. If you save money each month, you may not need to cover as much. Many companies only insure 50 percent on workers with a high income. Some allow as much as 60 to 70 percent of the income. One reason for the lower coverage is to reduce malingering and provide incentive to return to work. The other reason is the potential overlap with social security disability.
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Co-ordinate your long-term disability policy with short-term disability and social security disability. If you purchase short-term disability insurance, make certain that the length of time it pays co-ordinates with both the elimination period, the length of time before your disability policy pays, and social security. Look for the information about Social Security disability benefits in the reference area.
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Pay for the policy with after tax dollars or adjust the benefits for taxation. If you deduct the premium from your taxes or use tax-free dollars provided in employer plans, you'll pay taxes on the disability checks. When you purchase disability insurance with after-tax dollars, you don't need to cover your pre-tax check because there's no taxation.
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Decide how long you can go without a paycheck and still survive. The longer the elimination period, the more inexpensive the premium. Understand that you receive payments at the end of the month. If you choose a six-month elimination period, you won't receive a check until the end of the seventh month. Also establish the length of time you'll need to receive payments.
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Look for policies that offer "own occupation" in the definition if you have a specialty area of training. "Own occupation" policies consider you disabled if you can't perform the basic duties of your chosen occupation. For instance according to some policies, if you're a surgeon and have an "any occupation" policy, but could still work in fast food service, you wouldn't receive disability payments even though your income would be dramatically lower. You'll pay more for this type of policy so calculate the increase in your premium.
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Check for provisions like guaranteed renewable and non-cancelable. Guaranteed renewable prevents the company from dropping you for reasons other than a missed payment. A non-cancelable policy guarantees that your payments never increase. These policies often cost more than other kinds of policies.
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Expect to pay more or not receive coverage if you have a pre-existing condition. Insurance companies base the premium on the likelihood of a disability. Older people and those in less than perfect health may pay more.
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