Why you need disability insurance
Disability insurance ensures that you have income coming in even if you’re sick or injured to protect all of your financial plans. It is designed to replace a percentage of the income that is lost due to your inability to earn a paycheck. Having disability insurance means being able to meet your financial obligations — paying bills, covering household expenses, providing for your family — while you’re unable to work.
Types of disability insurance
There are two main types of disability insurance — short-term and long-term coverage. Both replace a portion of your monthly base salary up to a cap, such as $10,000, during disability. Some long-term policies pay for additional services, such as training to return to the workforce. Disability policies vary in how they define “disabled.” Some policies pay out only if you can’t work any job for which you’re qualified. Others pay out if you can’t perform a job in your occupation. Some policies cover partial disability, which means they pay a portion of the benefit if you can work part time. Others pay only if you can’t work at all.
How to get disability insurance
- Sign up for employer-sponsored coverage at work. Most employers that offer disability insurance pay some or all of the cost of premiums. Some employers don’t pay for disability coverage but offer it as a voluntary benefit. This lets employees buy coverage through the employer’s insurance broker at a group rate.
- Buy disability insurance through a professional association. Many professional groups offer members coverage at group rates.
- Buy an individual disability insurance plan. Michigan Term can shop the market for the best plan for you!
Buying your own disability policy
Consider buying a policy if you don’t have any or enough disability coverage at work or are self-employed. Employer-sponsored disability insurance usually pays only a portion of your base salary, up to a cap. It’s a good idea to supplement that coverage if your salary far exceeds the cap or you depend on bonuses or commissions.
An insurer will consider other sources of disability insurance to determine how much coverage you can buy.
Three Advantages of Buying Your Own Disability Insurance Policy
- You can customize the coverage with extra features, such as annual cost-of-living adjustments
- You can keep the coverage when you change jobs. Employer-paid coverage ends when you leave the company. (You might be able to take the coverage if you pay the full premium for disability insurance offered through the workplace.)
- You can collect benefits tax-free if you become disabled. If the employer pays for the coverage, you must pay taxes on the benefits.
3 Questions to ask yourself
When thinking about buying long-term disability insurance, keep these questions in mind.
- How much of your income would you need to replace to maintain your lifestyle if you became disabled and couldn’t work?
Use the answer to determine the monthly benefit to select.
- How long could you wait before the disability benefits kicked in?
This will determine the “elimination period” — the number of months you would wait after becoming disabled for the policy to pay out. A typical elimination period is 90 days, but you can choose shorter or longer periods. The longer the elimination period, the lower the insurance price.
- How long would you want the benefits to last?
For some occupations, such as plumbers and carpenters, benefits are limited to five years on most policies. For desk jobs, you can choose a benefit period to last a certain number of years or up to a certain age, such as 65. The longer the benefit period, the higher the price of the policy.
We protect our homes, cars, and health with insurance policies but tend to overlook protecting our greatest asset, our income. Everyone who earns an income should protect that asset with disability insurance.
Call Michigan Term at 888-242-9644 to speak with one of our dedicated life insurance agents to discuss your potential options.