There are two basic types of disability policies. Group policies and individual policies.
Group policies are often offered by employers or associations. Many companies offer disability benefits as a part of your benefit package or as an added benefit you can elect to participate in for a cost. If you are not sure what benefits your employer offers or if you have coverage, now is a great time to ask. This information should be available in a Benefits Plan Summary or other benefit document. If changes are needed, you can update your elections during the open enrollment period. A great advantage to a group policy is that the employer usually covers some or all of the premium. You also don’t have to go through the underwriting process which makes getting the coverage much easier. Some questions to ask would be if it covers short term disability, long term disability or both? What percentage of my paycheck would I receive on disability? How long is the waiting period before you can collect benefits? Do you have the option to convert the policy to an individual policy when you leave the company?
The other most common option is having an individual disability policy. The advantage with this policy is that you are the owner, and it stays with you even if you change employers. You are also in control in deciding how much of your paycheck you want to insure, the type of coverage (short/long term), how long you want to have the coverage and how restrictive the definition of disability is. Buying your own policy gives you a ton more options and flexibility. However, you will have to go through an underwriting process and the cost is generally higher than a group policy. One advantage that shouldn’t be overlooked is that when you are making the payments on your own policy, the benefits received are tax free (if paying the premium with after tax dollars). This can be huge when you find yourself out of work due to a disability event.
Things to keep in mind. You won’t be able to insure 100% of your paycheck, typical insurance plans will allow for a maximum of 70% to 80%. Start planning early. The younger you are, the less expensive the coverage will be. The best time to apply for coverage is when you are healthy. Waiting until after an event has already occurred will likely leave you with very few choices. Even if you are from a 2-income household, it is still important to insure against a disability event. On top of everyday expense, you will likely be faced with increased medical bills, physical therapy, medication costs etc. Thinking that you will be covered by workers compensation, employer sponsored plans or Social Security Disability are big what ifs. It can be difficult to quality for the programs, the benefits are often taxable and of a modest benefit amount.
If you have questions about disability insurance or would like us to review your coverage, let us know! We are happy to help.