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How Disability Insurance Works
By Jennifer M. Gangloff
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Americans count on dying more than they count on becoming disabled. But the truth is, though, you are more likely to become disabled during your prime working years than you are to die. One in seven people becomes disabled for at least five years before reaching age 65. And between ages 35 and 65, one in five people will become disabled, according to statistics from the 1990 census (the latest data available).
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Being out of work for an extended period can have devastating financial consequences on a family. Yet, more Americans have life insurance policies than have disability insurance (about 70 percent vs. 40 percent). We protect ourselves against dying, but not against losing our greatest asset - our earning potential.
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To put it bluntly, when you die, you no longer have expenses. When you're disabled, you still have living expenses, now compounded by medical expenses. You've got rent or a mortgage to pay, food, car, utilities, and perhaps your children's college tuition.
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That's where disability insurance comes in. Disability insurance can offer a financial safety net. When you're unable to work for an extended period of time because of an injury or illness, it pays monthly benefits until you are well enough to return to work. (It won't protect you, of course, if you are laid off or fired.)
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A Closer Look
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Disability insurance is a type of insurance policy you may be able to get through work or that you can purchase on your own. Just as with life insurance or health insurance. you pay monthly premiums. When you become unable to work because of a disabling physical or mental reason, you are paid a certain amount each month in benefits.
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There are numerous types of disability insurance, from bare-bones policies to those with options galore. Your individual coverage will determine when your benefits actually begin, how much you receive, the limitations on your coverage, and how long you can receive benefits.
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"You have to be a wise consumer and look at the different products," says Jennifer Sheehy, vice president and director of the CEO Council for the National Organization on Disability in Washington, D.C. "You have to read carefully. It's like buying a car. Insurance companies will disclose all the information, but you have to choose the product that's best for you."
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Who Needs It?
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Disability insurance is not really intended to cover a short-term injury or illness. If you rupture a disk in your back and are out of work for two months, it's not wise to draw on disability benefits because your future premiums may skyrocket. Instead, experts advise using your savings to live on for a couple months, even selling a mutual fiend or stock or two if necessary, to cover a short-term illness. In some cases, your employer will pay sick-leave benefits, anyway.
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Determining whether you need disability insurance is a personal choice. You must decide how much financial risk you are willing to assume should you suddenly find yourself unable to work for an extended period. How many months can you rely on your savings? How easy will it be for you to rebuild your nest egg for your retirement years? Can your spouse's income cover the lost salary?
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Your income level also helps determine your need. In general, experts say, people who make less than $30,000 or $40,000 a year don't need it Some insurance companies won't offer coverage for people with incomes below $20,000.
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Of the roughly 4 million Americans who have disability insurance, most are white-collar professionals. Some insurance companies won't cover workers in certain dangerous professions no matter how high their income, such as oil-field workers, pilots, miners, and police officers.
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If you would like more information please contact Greg Hanson at
The Lynn Company
661-873-2200 ext. 226
or you can fill out the simple submissions form below and a
representative from The Lynn Company will contact you.
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