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Have you ever considered what you would do if you were suddenly unable to work due to injury or illness? Making ends meet can rapidly become difficult, even if you have a good chunk of change in your savings account. It’s easy to assume that disability is something that only happens to other people, but when it is you, reality quickly sets in. According to research, one in four 20-year-olds will face disability at some point during their working years.
Without your paycheck, how long would you be able to make your mortgage or rent payment, buy groceries or pay your credit card bills without feeling the pinch? If you’re like most, it wouldn’t be long at all: Half of working Americans couldn’t make it a month before financial difficulties would set in, and almost one in four would have problems immediately, according to a Life Happens survey.
This is where disability insurance comes in. Think of it as insurance for your paycheck. It ensures that if you are unable to work because of illness or injury, you will continue to receive an income and make ends meet until you’re able to return to work. Without disability insurance, you may find it nearly impossible to pay all of your bills on a monthly basis.
The purpose of disability insurance is to replace a portion of your income when you are unable to work. The benefits are paid directly to the beneficiary so that they can cover their expenses as needed. While policies vary in duration and coverage, most can protect up to 70% of your income.
While accidents on the job account for some disability insurance claims, most actually are due to mental health conditions, pregnancy or chronic illnesses, such as cancer. The plan that you choose, including whether it is short-term or long-term, will depend on your specific risk level and those of your employees, if you are offering this coverage as part of a benefits package. So, what is the difference between types of disability insurance?
Short-term disability insurance is typically used to cover loss in income due to an illness, injury or pregnancy that is not expected to last for more than a few months. Most plans provide coverage for three to six months, and while the term may be shorter than long-term disability insurance, the payments are usually a higher percentage of your income, typically up to 70%.
On the other hand, long-term disability insurance is used to provide financial coverage for longer terms, sometimes even up to the date of retirement, depending on the plan. Most benefit periods for long-term disability insurance are stated in years, such as five years, 10 years, 20 years or more. The percentage of income covered may be lower than for short-term plans, usually up to 40%–70%.
A lot of factors go into determining which type of disability insurance is best for you, including how much you have in an emergency savings fund, the type of injury or illness you have and your current and future financial stability. Those without adequate savings may want to first get short-term coverage so that they don’t have to struggle to make ends meet while they focus on their health. However, short-term and long-term disability insurance can work together to provide immediate coverage followed by coverage that will last until you are ready to go back to work, or until you are of retirement age, should you be permanently disabled.
Whether you choose to offer an employer-provided disability plan or simply want to make the option available to your employees on a voluntary basis, we’ll make sure you understand all your options. Then we’ll help you and/or your employees pick the best available options. Give the agents at Fringe Benefit Analysts a call today to talk about disability insurance and the types of coverage.
We’re excited to announce that we’ve joined the Alera Group and will be changing our name to Alera Group Benefits.