What are the types of disability insurance?
Many types of disability insurance exist. While there are several types you can buy as an individual, there are others for which your employer provides. These different types of disability insurance all provide slightly different insurance coverage and benefits for specific situations. The Employer disability policy such as short-term disability insurance, are good backup to a long-term disability insurance policy.
There are also other types of disability insurance that can complement your individual policy but will not offer you adequate insurance coverage on their own just as long term disability insurance will do. The two basic types of disability insurance include;
- Short term disability insurance
- Long term disability insurance
Short-term type of disability insurance
The short-term disability insurance plan replaces a percentage of your income through weekly payout of benefits if you sustain injury or fall sick that temporarily stops you from working and earning. This type is ideal for disabilities that limits the policyholder’s ability to work, however, such disability is recoverable. A typical example is a situation where a Driver sustains fracture of his hands and is unable to drive for his employer.
How this type of disability insurance works is to replace about up to 60% of your before-tax income if you are unable to work due to illness or injury. But as the name implies, the coverage it offers only lasts for a short period of time like up to a year. The policy is usually provided by employers as group disability insurance policy for all his employees.
For the fact that the short term policy only lasts for a short term, you will agree that they are good add-on to long-term policies because they have shorter termination period unlike the long term policy. Thus, while you wait for your long term policy to become active, you can use your short-term plan to take care of your living expenses. This is as a result of the fact that the policy cannot be used in place of long term plan. It is worthy of note that while their respective rates are same, the amount of coverage differs. Thus, the long term coverage is more comprehensive when compared to the short term.
Long-term disability insurance
The Long term disability insurance is the opposite of the short term and remains the best type of disability insurance to buy because it is most cost-effective and the most comprehensive coverage. In the above vein, there is payment of monthly benefits if the policy insured becomes sick/ injured and is unable to work. Because it is long term, the payment of the benefit can last between two, five, or 10 years, or even until retirement depending on the insurance contract. And the monthly benefit is usually up to 60% of your net monthly income. The policy cost is usually about 1% to 3% of your salary. The long-term disability insurance offers policyholders the most robust insurance protection if he becomes disabled such that he cannot work.
Types of long-term
There are two types of long-term disability insurance plans and they are:
Own-occupation long term disability insurance:
This is a type of long term disability insurance pays insurance benefits to the policyholder if he is disabled and unable to do his regular occupation even if he has the ability to work in another occupation.
There are also three kinds of own-occupation disability insurance plan and they are:
Transitional own-occupation long term disability insurance:
This type of own occupation long term disability insurance plan works to pay the policyholder benefits if he is unable to work in his regular occupation due to injury or illness but he is able to secure another job for a lesser pay. The insurance benefit the insurance company pays is that which will make up the difference if your subsequent job has a smaller pay.
True own-occupation:
Here, the policyholder will receive benefits even if he can transit to another occupation but cannot do his regular occupation because of disability.
Own-occupation, not engaged:
This is the type that will pay you benefits if you can’t work on your occupation because of disability. However, the benefits will stop the moment you secure a new job.
Any-Occupation Disability Insurance:
Here, the policyholder can only receive benefits only and only if he cannot do an alternative job as a result of disability.
OTHER TYPES:
Mortgage payments disability insurance
This is type of disability insurance covers the policyholder’s mortgage payments if he can’t work due to disability. It is alternatively known as mortgage payment protection insurance
Supplemental disability insurance
This operates to close the gap between the amount of benefit you will receive from your current long term disability plan and the amount you will need to maintain your present lifestyle. In other words, the total amount of money you’ll need to cover your expenses when you cannot work because of disability.
Disability overhead expense insurance
This type is available for only business owners who will pay for a business’s overheads including rent, utilities, taxes, employee salaries, payroll taxes, postage, accounting fees, etc if the owner becomes disabled and unable to run the business. It is advisable to buy this policy in addition to a long-term disability policy, as it will not cover loss of your own salary.
