What Is Disability Insurance and Why Do You Need It?

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May God forbid but what if you meet with an accident that leaves you disabled? Life has unexpected twists and turns and you never know what tomorrow will bring. Formula 1 racing legend Michael Schumacher would have never thought of facing an accident while skiing in the French Alps.

Accidents can happen anytime, anywhere and many times, the impact of the accident could leave one in a state much worse than death. It’s scary to even think about such serious medical condition. But it’s even more terrifying to imagine what will happen to your family if you are alive but not able to make any living due to some disability. It’s absolutely right to always hope for the best, but practically you should also consider the protection of your family if the worst happens.

When life throws a curveball, make sure you’re financially prepared for it. For this, all you need to do is find the right type of insurance policy to protect one of your biggest assets: Yourself. Though there’s nothing that can compensate for the emotional trauma of disability, you can patch up the hole in your income net with disability insurance.

You might already have life or health insurance of some form, but have you ever anticipated the risks associated with disability? In this post, we’ll find out what disability insurance is and why you may need it.

What is Disability Insurance?

Suppose a musculoskeletal or any other injury leave you disabled and you cannot work. In such condition, disability insurance will protect your most valuable asset- your income. Disability insurance is a monthly payment that replaces some of your income if you can’t work because of an injury or illness. Many people avail disability insurance coverage through their employer but often company provided insurance is not sufficient. If you have a personal disability insurance policy, you’ll be able to continue paying your bills even if your health prevents you from working for an extended period of time. Typically, this type of policy provides you with 60 to 70 percent of your income so that you can sustain your lifestyle until you can return to your job.

What are the Types of Disability Insurance?

There are two main types of disability insurance: short-term and long-term.

1. Short-Term Disability Insurance

If you need a plan for a limited duration, there is short-term disability insurance. Typically, short-term disability insurance policies cover you for a period of 3-6 months or even up to a year. However, you’ll start receiving a fixed percentage of your regular income only after the waiting period is over. Usually, the waiting period, the time between when you become ill or injured and when your disability insurance benefits begin, is up to 14 days.

2. Long-Term Disability Insurance

Sometimes, an illness or injury results in an extended disability which ultimately exhausts all your family’s savings. To avoid such a difficult time, long-term disability insurance is the right choice. Typically, long-term disability insurance policy replaces monthly income for years or as long as you remain disabled. But the waiting period here is more than an emergency fund. It takes 3-6 month waiting period during which you would have to replace your income by other means. As far as coverage is concerned, it’s recommended to get as much coverage as you can—around 60–70% of your income.

Who Needs Disability Insurance?

Anyone who’s concerned about the future should consider buying a disability insurance policy, regardless of their job. However, some people need this policy more than others. If you have debt obligations or you don’t have an emergency fund, loss of income due to disability can have serious consequences for you. Also, if your profession is risky, you need a safe source of income if something were to happen to you. Moreover, if your parents became disabled because of a stroke, arthritis or other condition may be that have been genetically transferred to you. It is noteworthy here that disability insurance only replaces a portion of your income and doesn’t cover extra expenses like your medical bills.