Disability insurance is a type of insurance which protects the beneficiary against the risk of disability which can create an obstruction in his core activities as well as income. This insurance is considered to cover your wages which you may have lost as you could not keep up your job. When you face any accident during your work life, health insurance is there to look after your medical expenses and the disability insurance ensures that stream of income which you have lost due to that mishap.
Different Types Of Disability Insurance Cover
There are broadly two types of disability insurance: Long term disability (LTD) policy and Short Term Disability (STD) policy.
Short Term Disability Policy: The short term policies have the maximum waiting period up to 14 days. The benefit period in this case will be not more than 2 years. For this policy, you will continue obtaining the benefits till you have recovered or you have exceeded your maximum coverage amount. The claims that are settled through the short term disability policy are:
- Child Birth
- Disabling Injury
- Lengthy Illness
Long Term Disability Policy: For the long term disability insurance, you may have to wait for many weeks or many months for obtaining the maximum benefit. The benefit period may range from several years or throughout the rest of your life. This policy generally covers critical illness and the injuries that put a stop to your occupation. Childbirth is not included in this policy. The common claims for the long term disability can be listed as follows:
- Poisoning/ injuries
- Mental disorder
- Connective Tissue Disorders
- Cardiovascular disorders
Essential Features of The Disability Policy:
Guaranteed Renewable: This feature provides you with the right for renewing your policy along with the same benefits and do not let the company to cancel them. But your insurer has the right to increase the premium rates if you belong to the same class where the entire premium is being increased for all the other policyholders.
Non-Cancellable: The policy does not provide the right to the insurer for cancelling it, except the policyholder is not paying the premiums. The policy can thus be renewed year after year without reducing its benefits.
While purchasing the policy, you need to look for several features like:
Cost Of Living Adjustments (COLA): Depending on your increased cost of living, the COLA must be increasing your benefits from disability also which is generally measured by the Consumer Price Index. If you opt for this particular feature, you may have to count more premiums.
Return Of Premium: This feature helps in providing the refund of a part of your premium amount if no claims are made within the specific period mentioned in the policy.
Additional Options For Purchase: If this feature is available, you can buy additional insurance in a future date.
Partial Disability Rider: This option allows you , for a part time job so that you can accumulate part of your salary and receive the partial payment from the disability insurance if you remain partially disabled.
Co ordination Of Benefits: The amount of benefits that you receive from the insurance company will depend on your disability. You may combine all your policies and a target amount may be specified by the disability policy so that the policy can make up for the other policies.
How To Buy Disability Insurance :
Your employer can be offering both the long term and the short term disability insurance within your benefit packages. Some of the employers may pay the entire premium on their own and some of them may provide a partial premium from their employees and partial on their own. The employers may provide up to a certain coverage limit. In case the employees require more, they will have to upgrade the coverage amount by making some additional payment. You must be aware of the employer-provided plans as they generally provide 60 to 70 percent of your income when you face any disability. Besides, the commission and the bonuses are not included within the disability compensation. When you leave the particular company, your policy may be cancelled.
Which Disability Insurance is right for you?
This can be very tricky when you are choosing the disability insurance. As it is very difficult to predict whether you are going to face an injury or illness, it is also tough to understand how long it can keep you out of your work. So it is very difficult to choose the right one depending on the hypothetical situations. The premiums for the short term disability insurance are much cheaper than the long term ones. The payout and the coverage of the short term policy also do not last long. If you are facing a serious illness and battling for around 3 years, you will almost drain up all your finances. For protecting yourselves from these situations, you may opt for the long term policies. The best choice for the policy holders will be the right combination of both the short term and the long term policy.
Irrespective of your age, the injury and illness can take you through huge financial challenges. Even a disability for a short term can provide you with serious financial strain. So, to face the unknown, you must be ready with a backup plan with both the short term and the long term disability coverage.
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