Do I Need Disability Insurance?

Whenever we consider insurance, the first ones that come to mind are the two most common: home insurance and vehicle insurance. There is not much of a choice as to whether you take out insurance in these two instances, as the mortgage provider insists on coverage for the house and the law requires that your car is insured. The main factor that determines whether you can afford these two is whether you are able to earn an income.It is virtually impossible for anyone to both pay for the insurance and upkeep of their house and car as well as their family, without a regular income. A way to ensure against loss of income as a result of either permanent or temporary disability is to invest in disability insurance. The following will give reasons why you should have disability insurance as part of your overall financial management plan and what you should consider when choosing a policy to protect your home.
Social Security and Disability
There are many workers ih the U.S. who assume that the social security system will look after everything in the event that they become disabled. They make the mistake of not opting for personal insurance cover. What most people do not understand is that qualifying for the social security cover can be very difficult and very time consuming, meaning that if you do receive any benefits, they will take some time to commence. It must be the case that you cannot perform any kind of job, not just what you were originally performing, to qualify. If you can do any type of work, even for the minimum wage, you will not receive benefits.
The Social Security Administration (SSA) definition of "disabled" requires the following to be evident:
1. He or she is unable to engage in any substantial gainful activity (SGA).
2. The incapacity is the result of one or more medically determinable physical or mental impairments.
3. The incapacity has endured or can be expected to endure for a continuous period of at least 12 months or to result in death.
To obtain any form of coverage under Social Security for a disability, the person in question must have worked for a minimum of 20 of the last 40 calendar quarters immediately prior to the date of the commencement of the disability. Any income that is derived from investments or sick pay, or other forms of "passive" income are not included in the consideration of "gainful activity" income. There is, however, an income threshold above which a claim will be declined as it would be considered to be "substantial gainful activity". After all this, even if you are eligible, it is most likely that the benefits will not cover your financial obligations.
Protecting Your Family and Income
When you are considering the factors involved in your risk management, your emergency financial reserves or savings and ability to raise capital in a hurry should be considered. The maximum SSA is $1,600 per month - would that cover your costs? In the 2004 U.S. Census, the average monthly household income was more than double that - $3,700, which supports the claim that an extra income source is an absolute necessity for the majority of workers in the U.S. to support them if they became disabled. Make sure that you are clear about the type of policy you are purchasing, be it short or long term. "Short term" is defined as a period of time of less than 90 days, whilst "long term" is time in excess of 90 days.
When you know which of these you have, you should then ascertain whether or not the cover is adequate to your needs. If the policy does not cover your income, an option for you is to purchase a personal disability policy. As you age, the premiums increase, so it is advisable to obtain cover whilst you are relatively young and healthy. Some benefits may be taxable, depending on how you pay the premium, but generally if it is paid with "after-tax" dollars, the benefits should be tax free. If the premiums are paid by your employer, you may have to pay tax on any benefits.
These are some things you should consider when looking into disability insurance:
What level of coverage should you take?
You should ensure that the coverage is sufficient to continue your family's standard of living just prior to the incident that caused the disability.Don't try to overcompensate by taking out too much cover - you may be able to save on some expenses such as transport to and from work each day, whilst there may be unexpected expenses such as medications.In other words, weigh up both sides of the argument before you make a decision on the level of coverage.
What is an "elimination period"?
The elimination period is the amount of time between when you have been deemed eligible and when the benefits start coming in. This is usually around 90 days, so you should ensure that you have the necessary funds to support yourself during this time. Make sure that you have factored this elimination plan into your personal savings requirements.
For how long will an individual policy pay a benefit?
There are numerous options for this and as such you should choose the time period for the benefit. The recommended policy would be one that pays you until you reach 65 as this is when retirement benefits will most likely kick in.
What is the difference between "own" and "any" occupation?
"Own" occupation is defined as work performed in your current occupation, whereas "any" occupation is just that - it includes all types of jobs. Therefore, you are best to choose the "own" occupation, where it is offered as an option, for obvious reasons.
The number of disability insurance companies has decreased dramatically over the last thirty years. In fact, in 2003 there were only 26 such companies from an original 535. It has been estimated that in 2004 only 27% of American workers had a disability insurance policy. At the same time, in excess of 20 million out of the estimated 168 million Americans of working age had one or more disabilities. It appears then that the cost and numbers of disabilities amongst the working population is on the rise. How would your family cope financially if you became disabled? If you are unsure as to whether you and they would be covered, perhaps you should look at another insurance plan or obtaining extra cover from your existing insurance.

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