Disability insurance is a valuable benefit. It can provide you with extra income in the event that you can't work, keeping you and your family afloat financially during a difficult time. Here are some lesser-known facts to help you locate the best plan for your needs and evaluate your personal need for disability insurance.
Your disability insurance plan may have a wide range of exclusions. For instance, some disability plans don't cover:
Your employer's group disability insurance policy may have strict definitions to determine whether your disability qualifies. To be covered, you might need to be completely disabled and unable to work in any capacity at all--not just in your own profession.
The Social Security Administration (SSA) has a very strict definition of what constitutes as a disability, and many injuries or ailments won't qualify. You won't receive Social Security disability benefits unless you have a disability that prevents you from pursuing any employment and lasts longer (or is expected to last longer) than a year, or if medical professionals anticipate that your disability could be life-threatening. From 1999 to 2008, the SSA denied an average of 53 percent of disability claims annually, mostly due to medical reasons (Social Security Administration, 2009).
Your employer may offer a range of disability benefits, or none at all. Employers generally provide life insurance rather than long-term disability insurance. Prices for disability insurance vary, but this coverage will probably be more expensive than life insurance. Even if your employer does provide a short-term disability policy, you need to pay taxes on the benefits you receive. Unlike group policies, individual disability policies aren't taxable.
Some states--including California, Hawaii, New Jersey, New York and Rhode Island--cover employees through state disability insurance. These states typically gain funding for disability insurance programs through payroll deductions. State disability insurance generally has a broad definition of disability, including pregnancy, allowing more workers to receive benefits. States often don't deny coverage due to pre-existing conditions, and often require that all eligible workers receive coverage either from the state or through a voluntary employer plan.
If you decide to purchase individual disability income insurance, you may have more range in defining disability. If you purchase an occupational policy, you can work in another occupation while collecting disability benefits from your previous position. If you choose a renewable and non-cancelable disability policy, you can re-assess and renew it each year, keeping your premiums and monthly benefits stable.