DISABILITY INSURANCE

Disability insurance is a class of insurance policy that pays some of a person’s usual income when he or she is unable to work as a result of injury or illness. Disability is any condition that makes it impossible for a person with it to do certain things. The restrictions may be from engaging in certain activities or from interacting with the world around. If you become too ill or disabled to work, disability insurance offers regular benefit payments so you don’t have to go without an income.

WHO NEEDS DISABILITY INSURANCE

People who engage in risky or physically challenging jobs
The breadwinners of the family
People with recurring injuries
Parents

Benefits

It helps to provide funds in the event of eventualities affecting the family breadwinner
The policy provides income to cover expenses in the event of disability since it pays you a percentage of your salary
Disability insurance protects you against loss of income
It may cover medical bills depending on the terms of your policy
Disability insurance benefits are in most cases not subject to taxation

What are the types?

There are several types of disability insurance out there, while you can buy independently, there are some which are provided by your employer. But they all offer slightly different coverage and benefits for different situations. Employer- provided disability plans, such as short-term disability insurance, are good supplements to a long-term disability plan. The other types of disability insurance can complement your individual disability plan but will definitely not offer you enough coverage on their own as long term will do. The two common types include;

Short-term

Short-term disability insurance replaces a certain percentage of your income through weekly benefits if you sustain injury or fall sick that temporarily stops you from working. This is most ideal in situations disabling incidents that limits one’s ability to work but which is generally recoverable. For example, a situation where a Driver suffers fracture of his hands and is unable to drive his vehicle.

This type replaces up to 60% of your before-tax income if you can’t work due to an illness or injury. However, like the name implies, the coverage only lasts for a short period of time- say up to one year.

Short-term disability policies are often offered by your employers as group disability insurance, comprising of all the employees of the employer.

They are a good supplement to long-term policies because they have a drastically shorter elimination period that can be just a few days. You can use a short-term policy to cover living expenses while you wait for your long-term policy to become active. This is because it cannot be used in lieu of long term. However, their respective rates are same but the level of coverage differs-long term coverage is more comprehensive.

Long-term

Long term disability insurance remains the best type of plan for most people because it is the most cost-effective and offers the most comprehensive coverage. Furthermore, there is payment of monthly benefits if the policyholder becomes sick or injured and can’t work. The benefit period can last two, five, or 10 years, or even until retirement, and the monthly benefit is up to 60% of your gross monthly income. It generally costs about 1% to 3% of your salary. Because of this, long-term plan provides the most robust protection if the policyholder cannot work as a result of disablement.

Types of long-term disability insurance

There are two types of long-term disability insurance policies:

Own-occupation disability insurance:

This is a type of long term plan that pays benefits to the policyholder for his inability to work at his regular occupation and will pay him benefits even if he has the ability to work in another occupation.

There are also three kinds of own-occupation disability insurance policies and they are:

Transitional own-occupation:

In this type, if you can’t work in your own occupation due to injury or illness but you are able to secure another job for which you can do but with a smaller salary, your insurer will pay you benefits that will make up the difference.

True own-occupation:

Here, the policyholder will get benefits even if he can do another occupation but cannot do his regular work as a result of disability.

Own-occupation, not engaged:

This type will pay you benefits if you can’t do your regular work as a result of disability. But the benefits will cease once you get a new job.

ANY-OCCUPATION DISABILITY INSURANCE:

This is the type of long term plan that will only pay benefits to the policyholder if he can’t do an alternative job that you can reasonably do as a result of illness or injury.

OTHER TYPES OF ARE:

Mortgage

This is the kind of long term disability insurance that covers the policyholder’s mortgage payments if he can’t work due to an illness or injury. It is also known as mortgage payment protection insurance

Supplemental

Supplemental disability insurance closes the gap between what you will receive from your present long term disability plan and what you will need to maintain your present lifestyle- the full amount of money you’ll need to cover your expenses if you cannot work as a result of illness or injury.

Disability overhead expense insurance

This type is available only for business owners that will pay for a business’s overhead including rent, utilities, payroll taxes, employee salaries, postage, accounting fees, etc if the owner becomes ill or injured and can’t run his business.

Disability overhead expense insurance needs to be bought in addition to a long-term disability policy, as it will not cover the loss of your own salary and expenses.