What Is Disability Insurance and How Much Can You Buy?

Disability insurance is perhaps one of the most important, yet overlooked and under-purchased, types of policies. If your job is physically dangerous, or if you have hobbies that put you at risk of receiving serious injuries, you should consider purchasing disability insurance coverage. These policies will pay you a portion of your income if you get hurt and can’t work.

Basics

If you sustain an injury that prevents you from performing the duties of your current occupation, disability insurance will pay you a portion of your gross wages while you recover. These policies provide the funds necessary to help you maintain your lifestyle and pay your ordinary monthly bills until you can once again start earning a paycheck. Policies can be tailored and customized to best suit your needs and available monthly budget.

Elimination Period

The elimination period is the length of time between the onset of your disability and when you become eligible to collect benefits. At the time disability insurance is purchased, the elimination period is chosen by the policy owner. Common elimination periods are 30 days, 60 days, 90 days, six months and one year. Shorter elimination periods result in more expensive policies.

Benefit Period

The benefit period is the length of time you will continue to receive an income from the policy. Even if you are still disabled at the expiration of your benefit period, the insurance company will no longer send you a monthly income check. The benefit period is perhaps the most important aspect of a disability insurance policy. Most insurance companies offer benefit periods of two years, three years, five years or to age 65.

Benefit Amount

The amount of money you receive from a disability insurance policy may not be greater than what you earn while actively at work. Since insurance is regulated at the state level, each state has implemented its own laws regarding disability insurance income limits. However, most states have adopted similar regulations stipulating that disability income may not exceed two-thirds of your current wages.

References

HCV Advocate: An Overview of Disability Insurance
Protect Your Income: Individual Disability Insurance Policy Tips
The Wall Street Journal: The Skinny on Buying Disability Insurance

Resources (Further Reading)

MSN Money: Disability Insurance Can Save Your Life

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This article is a Twisted Nonsense Exclusive! (04/14/2011)