Have you ever wondered how you’d pay the bills if you were injured or too ill to work? While it may seem unlikely, for many, this is a reality. One out of four 20-year-olds will suffer a disability before they retire. Plus, more than half of Americans are financially unable to cover three months of living expenses without a paycheck. Whether you’re young and healthy or nearing your retirement age, individual disability insurance can provide an extra layer of protection.
What is Individual Disability Insurance?
Simply put, individual disability insurance (IDI) is insurance offered in cases where you’re unable to work due to an injury or illness. It’s more commonly known as personal or private disability insurance. As the only one insured, you’re the policyholder and are responsible for paying the full premium balance. Your employer may extend coverage, or you can purchase directly from an insurer. It typically pays a percentage of your total wages or base salary in the form of monthly payments.
How does Individual Disability Insurance Differ from Other Coverage Options?
Disability insurance should not be mistaken for workers’ compensation, also known as workers’ comp, or Social Security Disability Insurance (SSDI). Unlike IDI, workers’ comp is only available if you get sick, hurt, or disabled while on the job. In most states, employers are legally obligated to provide workers’ comp. As a result, job-related injuries are usually covered by these tax-free benefits, whereas injuries or illnesses occurring outside of work qualify for IDI.
SSDI is a government program managed by the Social Security Administration and is not suitable for short-term disabilities. IDI is a private insurance option offering both long and short-term coverage. While they’re both a great choice for long-term use, IDI is often quicker to obtain, and typically covers more of your income than SSDI.
Long-Term Disability Insurance Versus Short-Term Disability Insurance
Individual disability insurance falls into two main categories. Depending on your circumstances, you can opt for either short-term or long-term coverage. Both are similar in that they provide a monthly disability income source. However, there are some important distinctions.
Short-term disability insurance is ideal for non-work related injuries that last less than a year. Medical conditions, such as pregnancies, surgeries, or severe illnesses, can all qualify. In most cases, payments cover about 60 to 70 percent of your base salary. Monthly benefits show up after your elimination or waiting period, which lasts around one to two weeks.
Long-term disability insurance usually takes effect after short-term disability benefits are exhausted. It typically covers around 40 to 60 percent of your base salary. To qualify, you must have a severe injury or ailment preventing you from working. Common reasons include undergoing cancer treatments or long-term chronic pain. These policies are best if you need extended coverage lasting beyond a year. They’re also the most cost-effective solution for existing long-term care insurance holders prone to accidents or illnesses. Rather than pay excessively high out-of-pocket costs or relying on low coverage options, you only pay a monthly premium that covers you when you need it. Plus, the earlier you sign up, the more you save on your policy. Because long-term insurance kicks in after short-term disability ends, the elimination period can take several months.
Is Individual Disability Insurance A Good Option for You?
The odds of suffering a severe illness or injury may seem slim if you’re a healthy adult. However, it can happen, and you should prepare, especially if you’re nearing retirement and are at high risk for developing health ailments and accidents. It may be wise to keep your options open for an individual disability insurance policy in Worthington, OH if you:
- don’t have enough savings to cover three months of living expenses;
- have a substantial amount of debt to pay off;
- are prone to injuries such as sprains, fractures, and strains;
- are aging and have existing long-term care insurance in place;
- plan to get pregnant in the future;
- suffer from an auto-immune disorder, a chronic illness, or mental health issues.
Having disability insurance in Worthington, OH provides an extra layer of financial security for you and your family. Above all, it helps prevent you from digging into your savings and other monetary assets. Nonetheless, you should still research which coverage options best fit your needs.
As you near retirement, the risks of disability increase, and more economic challenges come into play. At Royal Oak Financial Group, our advisors are here to help you understand the many aspects of financial planning that go into estate planning, including long-term care insurance. Get in touch today to start planning for a better financial future.
