Insurance That Pays While You Are Sick & Out of Work
Disability insurance pays you a portion of your salary, if you are unable to work due to an injury or illness. Your employer may offer a short-term disability benefit, which usually pays 70 to 80 percent of your salary, and long-term disability benefits, which usually pay 60 percent of your salary. Whether your employer offers it or not, you can purchase your own disability insurance which ensures you'll have income if you become disabled or ill.
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Types of Disability Insurance
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Disability insurance comes in two types -- short-term and long-term. Short-term disability begins paying benefits after a set time following the commencement of your illness or injury. This is the waiting period. Once the waiting period is over, your benefits are paid at a percentage of your income, for a specified period of time. Once that time period is reached, your benefits end. If you also have long-term disability benefits, your benefits begin when short-term disability ends. Typically, long-term disability pays you at 60 percent of your rate of pay and lasts for a set time period, usually two to five years. These types of policies are both available as group insurance. You generally choose the term you wish to receive benefits with an individual plan. The longer the term, the higher the premium. If you purchase private disability insurance, you usually can collect it along with your employer's benefit without penalty.
Own Occupation
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When you purchase disability insurance, or when you are covered by your employer, it is important to know under what circumstances you are eligible for benefits. This is where the occupation clause comes in. If your disability plan -- long- or short-term -- covers you as long as you are disabled for your own occupation, you would qualify for benefits if you cannot perform your current job. For example, if you are a roofer and develop a condition that prohibits you from climbing a ladder, you would be unable to perform your own occupation and your insurance would pay off, even though you could work as a cashier.
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Any Occupation
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If your disability insurance benefit only pays off if you are disabled for any occupation, you must be unable to get a job doing anything for which your experience, age and level of education would qualify you. If you are able to perform any job other than your own, your insurance will not pay off. This also applies to group insurance.
Long-Term Insurance
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One thing to watch for with long-term insurance is the occupation rating it has, and when that occupation rating kicks in, particularly with your employer's long-term disability insurance. For example, your plan may only cover you for two years if you're only disabled for your own job, but may change that to an "any occupation" rating for the remainder of the term -- the last three years of a five-year term. If it has such a clause, and you can perform other work, your benefits will end.
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