All of us should have a financial to-do list. Purchasing disability insurance probably ranks pretty low on this list. Most of us figure that we won't need it. But according to current statistics, approximately 30% of people age 35 to 65 will have a disability lasting at least 90 days. These disabilities can seem as minor as a broken bone, an atypical pregnancy, or an emotional conditional, but all of these can cause you to stay away from your job. If you should ever need disability insurance, you will be glad that you took this precaution. A great number of people without coverage could be driven deeply into debt. Most people think they do not have to purchase additional disability coverage because they are already covered through work. But most disability insurance covered through employers only provides 60% of your salary. Further, these policies usually set a monthly maximum of $10,000, which is less than 60% of highly compensated employee's salary. Another problem is that these benefits are fully taxable. This means your net payment is a lot less than the 60% of your salary. These employees find themselves trying to survive on 40% of their salary. When shopping for a policy, look for the strength of the company. You need to determine whether the insurance company is financially sound. Also make sure they will be able to pay their claims in the future. On your contract, check the renewability. There are three options. The non-cancelable contract is the best. This type of contract locks in your rates and benefits. The only person that can make changes is you, not the insurance company. Next in line is the guaranteed renewable policy. Once you have purchased your policy, the insurance company cannot drop you but they can raise the prices. The worst type of policy is the conditionally renewable policy. The insurance company can raise rates at any time or put any condition on the policy. Pay attention to how the insurance company defines "total disability". The most lenient, consumer-friendly approach is "own-occupation disability". This means that if you are disabled and cannot perform your principal job duties, you will be paid your disability benefit, even if you can perform other tasks. The most stringent definition of "total disability" is "any occupation disability". This means that you will not be paid any benefits unless you are unable to do any kind of work and are completely unemployed. You will find that many insurance companies define "disability" somewhere in between the two extremes defined above. It is prudent to purchase partial disability or residual coverage. This means that the insurance company will pay partial disability benefits if you can work at your job only part time. Their employer would pay for the time actually worked and the partial disability coverage would pay the other portion. The price of disability insurance premiums typically cost 3% of your annual income. This varies based on factors such as age, gender, occupation and health history. When pricing your policy, the insurance company will categorize you according to your occupation class. Your policy will be more expensive if your occupation is more likely to results in a disability. As you can see, it is financially prudent to purchase disability insurance if you would lose your income because of a disability. Only the wealthiest people are not in this category. There are many factors involved when purchasing this type of insurance. Take your time and educate yourself. Chances are, you will be glad that you did. |
