Disability insurance was long thought to be an entitlement in both the public and private employment sector. But not any more. Studies show that employers are increasingly less likely to include disability insurance in employee benefit packages — leaving more and more workers on their own. If that means you, then you’ll need these handy tips to track down the best disability insurance for you and your family.
First the bad news. According to LIMRA, a think tank and research center based in Windsor, Conn., company contributions toward employee disability insurance dropped to 48% in 2009 — that’s down from 59% in 2002.
Unfortunately, that decline in employer-backed disability programs comes at a time when disability claims are on the rise. According to the Social Security Administration, disability claims have climbed from 2.6 million in 2007 to 3.3 million in 2009. Plus, the SSA estimates that Americans have a one in five chance of becoming disabled.
So there you have it. More need for disability insurance but less paths to getting it. And that increasingly leaves Americans on their own.
Where to start? See if you can chip away at the cost of disability. The insurance giant General Re LifeHealth (Stock Quote: BRK.A) estimates that the average annual cost for new disability insurance is about $238. To get your cost-cutting program rolling, check if there is any government aid available to you. The Social Security Administration ususally only offers disability insurance to those suffering from a malady that is expected to keep them out of work for one year or more (and to individuals with terminal illnesses).
But the SSA says that it approves 36% of disability insurance applicants, and covers 40% of their annual income on average. Get going early — it can take up to five months to get the green light from the government. While you’re waiting, check to see if your state has any disability programs, too.
Your other primary option is to buy disability insurance through your employer. Most larger companies offer such insurance, both short-term and long-term. You’ll need to know a few things before you settle on a policy, including;
- What does the policy pay? Most policies pay out as a percentage of salary. But does that include bonuses or commissions. Your human resources rep should be able to sort that out for you.
- Does it transfer? You might have a great disability process, but what happens if you leave your job? Can you take the insurance with you? Find out beforehand. If not, prepare to go through the process all over again at your new firm.
- What conditions trigger a disability payout? Not all policies are the same. Usually, if you have an injury or illness that prevents you from doing your specific job (i.e. a construction worker with a broken hand, or a nurse with ligament damage in her knee), you’ll qualify for disability.
Also, ask your employer if there is a maximum payout you should know about, and whether or not your disability benefits are taxable. Remember to ask about any illnesses or injuries that are excluded in your firm’s disability plan.
If you’re a sole proprietor, you’ll need to explore individual coverage. Start by visiting some good online sources on disability coverage. Two of the best are:
Disability coverage can literally be a lifesaver, so don’t go without it. That said, tread carefully when shopping for coverage, and ask the right questions before signing on the dotted line.
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