When you are thinking about your financial security, disability insurance should be one of the first things on your mind. This type of insurance is important for two reasons: it protects you in case of an unexpected disability and is a key part of any sound risk management plan.
This blog post will discuss what disability insurance is, how it works, and why you need it. We will also answer some common questions about this topic. So if you want to learn more about disability insurance, keep reading!
What’s Disability Insurance?
Disability insurance is a type of insurance that provides benefits if you cannot work due to an injury or illness. The amount of the benefit depends on your policy, but it typically replaces a portion of your income. This can be helpful if you cannot work and earn an income, but it can also help with expenses like medical bills.
How Does It Work?
If you become disabled and cannot work, you must file a claim with your insurance company. They will then review your claim and determine if you are eligible for benefits. If they approve your claim, they will begin paying out the benefits specified in your policy.
What Are the Benefits?
There are several benefits to getting disability insurance. These include:
- It can help you keep up with your bills and expenses if you cannot work.
- It can provide peace of mind knowing that you have a safety net if you become disabled.
- It can help you maintain your lifestyle if you are unable to work.
- It can help you pay for medical bills associated with a disability.
Why Do You Need It?
There are several reasons why you should get disability insurance. It’s important to understand why this type of insurance is essential for your wealth management. Some of the most important reasons include:
Financial Protection
The most important reason is that it provides financial protection if you become disabled and cannot work. This type of insurance is especially important if you have a family or dependents, as they will still need to be taken care of financially if something happens to you.
Medical Coverage
Another reason to get Disability insurance is that it can help you pay for medical bills associated with a disability. This can be a huge financial burden, and having insurance can help relieve some of that stress.
Risk Management
Lastly, disability insurance is a key part of any sound risk management plan. This type of insurance helps protect you from the financial risks associated with an unexpected disability. By getting disability insurance, you take a proactive step to safeguard your finances in an unforeseen event.
What To Look For In A Disability Insurance Policy
When you’re shopping for a disability insurance policy, it’s important to consider the following:
The Elimination Period: This is the time that must pass before the policy benefits kick in. A longer elimination period will result in lower premiums, but it also means that you’ll have to wait longer to receive benefits if you become disabled.
The Benefit Period: This is the length of time that benefits will be paid out if you become disabled. Some policies have a lifetime benefit period, while others have a shorter benefit period (e.g., five years).
The Coverage Limit: This is the maximum amount of money the policy will pay throughout the benefit period. Ensure that the coverage limit is high enough to cover your living expenses.
The Premium: This is the amount of money you’ll have to pay for the policy. Be sure to shop around and compare premiums before you purchase a policy.
These are just a few things you should keep in mind when shopping for disability insurance. Be sure to do your research and choose the right policy for you. Wealth management services can help you out.
Disability Risk Management
There are several different ways to manage the risk of becoming disabled.
Purchasing Disability Insurance
One way is to purchase disability insurance. Disability insurance can help you protect your income and maintain your standard of living if you become disabled.
Set A Financial Plan
Another way to manage the risk of becoming disabled is to plan financially. This means saving money and investing in assets that will provide for you and your family if you become disabled.
For example, you might consider buying a home with a first-floor bedroom and bathroom to make it livable even if you become disabled. Or, you might invest in a trust fund or annuity that will provide income if you become unable to work.
What’s Considered As A Disability?
There’s no one definitive answer to this question since policies can vary. Still, in general, a disability is considered to be an injury or illness that prevents you from being able to work and earn an income. This can be either temporary or permanent, depending on the policy.
Who Needs Disability Insurance?
Most people don’t realize how vulnerable they are to an injury or illness that could prevent them from working. According to the Social Security Administration, one in four 20-year-olds will become disabled before they retire.
This is why disability insurance is such an important part of financial planning, especially if you’re the breadwinner of your family. If you’re unable to work, your family could face serious financial hardship.
Disability Insurance Types
There are two main types of disability insurance: Short-term and Long-term disability insurance.
Short-Term Disability Insurance
This type of policy will typically kick in after you’ve been out of work for a certain period, usually around three to six months. The benefit payments will last for a set amount of time, usually between six and twelve months.
Short-term disability insurance can be purchased as an individual policy or as part of a group plan through your employer.
Long-Term Disability Insurance
This type of policy will provide you with income if you’re unable to work for a longer period, usually more than six months. The benefit payments can last for the rest of your life or until you can return to work.
Most long-term disability policies are offered through employers, but individual policies are also available.
Benefit Periods
Some policies will only pay for two years, while others will provide benefits until you reach retirement age. Some policy options will allow you to receive benefits for life.
The benefit period is one of the most important factors to consider when purchasing a disability insurance policy. You want to make sure that the policy you choose will provide you with the coverage you need for as long as you need it.
Disability Insurance Riders
When shopping for disability insurance, you may encounter some additional rider options. These riders can be added to your policy for an additional cost and provide you with additional coverage and protection.
Some of the most common riders include:
Cost of Living Adjustment Rider: This rider will adjust your benefits payments to keep up with inflation.
Future Purchase Option Rider: This rider allows you to purchase additional coverage in the future without having to go through another medical exam.
Non-Cancelable and Guaranteed Renewable Policy Rider: This rider protects you from having your policy canceled by the insurance company or from having your premiums increased.
When considering a disability insurance policy, be sure to ask wealth management services about any available riders to decide what coverage is right for you.
Elimination periods
Elimination periods are the time that must pass between when you become disabled and when your benefits begin. The most common elimination period is 90 days, but some policies have 60- or 180-day elimination periods.
Your benefit amount is the monthly income replacement you choose when purchasing a policy. It can be a percentage of your current income or a fixed dollar amount, up to a maximum limit set by the insurer. Your benefit amount will be paid to you tax-free every month for as long as you remain disabled and unable to work.
Continuance Provisions
There are a variety of provisions that you must know about before signing a disability insurance policy. These include:
Non-cancelable: This means that as long as you pay your premiums on time, the insurer cannot cancel your policy.
Guaranteed renewable: This means that as long as you pay your premiums on time, the insurer cannot refuse to renew your policy when it expires.
Residual or partial disability benefit: This provision allows you to receive a partial benefit if you can only work part-time because of your disability.
Cost of living adjustment (COLA): This provision increases your yearly benefits to keep up with inflation.
Inflation protection: This provision increases the amount of coverage you have each year to keep up with the cost of living. There are two types of inflation protection: simple and compound. Simple inflation protection increases your coverage by a set percentage each year, while compound inflation protection increases by the same percentage plus the previous year’s increase.
By understanding these key features of disability insurance, you can be sure to find a policy that meets your needs.
Get A Policy That Fits Your Needs
Disability insurance is an important part of financial planning, especially if you are the main breadwinner in your family. At Nesso Wealth, we work hard to provide a service that will fit your needs, whether you are looking for insurance or investment services. We understand that everyone’s financial planning is different, and we tailor our services to meet your specific needs.
When it comes to financial planning, risk management is a key component. And one of the risks that we often overlook is becoming disabled and unable to work. Our team at Nesso Wealth is committed to helping you plan for all aspects of your financial future, including protecting you and your family in the event of a disability. Call us to learn more about how we can help you.
