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DISABILITY

Your most important asset is not your home, your car, your jewelry or other possessions. It’s your ability to earn a living. Think about it: All of your plans for the future—from buying a home to putting your kids through college to building a retirement nest egg—are based on the assumption you will continue to earn a paycheck until you retire. But what would happen if those paychecks stopped? That’s where disability insurance comes in. It provides an income to you and your family if you are unable to work because of illness or injury.

Your income is typically your largest asset. Think about how much you earn in a year and what that would be over a lifetime. The financial consequences of a lengthy disability could literally cost you millions. A 25-year-old worker who makes $50,000 a year and suffers a permanent disability could lose $3.8 million in future earnings. You don’t hesitate to insure your home, car and other valuable possessions, so why wouldn’t you insure something that is much more valuable than all those things?

If you’re still not convinced that your income is worth insuring, think about how long you’d last without your paycheck before it would be difficult to pay for everyday expenses. The LIFE Foundation conducted a study that found that 70 percent of working Americans couldn’t make it one month before financial difficulties would set in. More than one in four Americans wouldn’t make it a week. In the event of a disabling illness or injury—and the odds are much greater than you might realize—disability insurance provides you and your family with a source of replacement income to help make ends meet until you’re able to return to work.

 

WHO NEEDS IT?

In the event you sustain a disabling injury or illness, there are a number of sources of disability benefits you might be able to tap into. For instance, the government offers disability benefits, as do many employers. You should definitely take the time to understand the benefits that would be available to you through these sources. Just be mindful that there are limitations on the benefits available through these sources and sometimes the benefits won’t be sufficient to meet your income replacement needs. In those instances, you’ll want to seriously consider obtaining additional coverage, either through the workplace or on your own.

If you’re employed and you suffer a disabling illness or injury, you might be able to count on Workers’ Compensation insurance to replace some of your salary. All states require employers to provide Workers’ Compensation coverage. It typically pays about two-thirds of your predisability income. However, it only pays in cases where your illness or injury is related to your work, and the vast majority of long-term disabilities are not job-related.

A handful of states provide short-term disability coverage—typically for up to six months—that workers pay for through a payroll deduction. They are California, Hawaii, New Jersey, New York and Rhode Island, as well as Puerto Rico. For those who live in these states, this can be an important source of short-term income replacement.

The federal government administers a disability insurance program that covers most workers, but qualifying for benefits is far from a sure thing and the payment levels (determined by your salary and work history) are fairly modest. About 60% of applications for Social Security disability benefits are initially denied, and the average monthly payment of current beneficiaries, $1,063, is barely above the poverty line.

The main source of disability income protection in the United States is coverage provided or sponsored by employers. Many employers, especially larger ones, provide their employees with group insurance coverage. There are two forms—short-term disability (STD), which replaces a significant percentage of your income for about three months in most cases, and long-term disability (LTD), which typically pays 40% to 60% of your base salary (pretax) for longer periods.

Often, employees will be given the option to add to the baseline coverage that their employer provides. Some companies don’t provide disability coverage but help their employees by giving them the opportunity to purchase coverage on a voluntary basis. With this type of program, employees, rather than the employers, pay the full cost of the coverage. A benefit of purchasing disability coverage at the worksite is that it’s generally easier to qualify for than coverage you purchase on your own. Check with your employer’s human resources department or benefits manager to see what coverage and purchase options your company’s plan provides.

The most flexible and reliable source of coverage is an individual disability insurance policy you purchase on your own. A privately owned policy is portable, meaning you won’t have to worry about losing coverage if you change jobs. Generally, most individual plans will pay between 40% to 65% of your pre-disability gross salary. When paid with after-tax dollars, benefits are received income-tax free.

 

SOURCES OF INCOME PROTECTION

In the event you sustain a disabling injury or illness, there are a number of sources of disability benefits you might be able to tap into. For instance, the government offers disability benefits, as do many employers. You should definitely take the time to understand the benefits that would be available to you through these sources. Just be mindful that there are limitations on the benefits available through these sources and sometimes the benefits won’t be sufficient to meet your income replacement needs. In those instances, you’ll want to seriously consider obtaining additional coverage, either through the workplace or on your own.

If you’re employed and you suffer a disabling illness or injury, you might be able to count on Workers’ Compensation insurance to replace some of your salary. All states require employers to provide Workers’ Compensation coverage. It typically pays about two-thirds of your pre-disability income. However, it only pays in cases where your illness or injury is related to your work, and the vast majority of long-term disabilities are not job-related.

A handful of states provide short-term disability coverage—typically for up to six months—that workers pay for through a payroll deduction. They are California, Hawaii, New Jersey, New York and Rhode Island, as well as Puerto Rico. For those who live in these states, this can be an important source of short-term income replacement.

The federal government administers a disability insurance program that covers most workers, but qualifying for benefits is far from a sure thing and the payment levels (determined by your salary and work history) are fairly modest. About 60% of applications for Social Security disability benefits are initially denied, and the average monthly payment of current beneficiaries, $1,063, is barely above the poverty line.

The main source of disability income protection in the United States is coverage provided or sponsored by employers. Many employers, especially larger ones, provide their employees with group insurance coverage. There are two forms—short-term disability (STD), which replaces a significant percentage of your income for about three months in most cases, and long-term disability (LTD), which typically pays 40% to 60% of your base salary (pretax) for longer periods.

Often, employees will be given the option to add to the baseline coverage that their employer provides. Some companies don’t provide disability coverage but help their employees by giving them the opportunity to purchase coverage on a voluntary basis. With this type of program, employees, rather than the employers, pay the full cost of the coverage. A benefit of purchasing disability coverage at the worksite is that it’s generally easier to qualify for than coverage you purchase on your own. Check with your employer’s human resources department or benefits manager to see what coverage and purchase options your company’s plan provides.

The most flexible and reliable source of coverage is an individual disability insurance policy you purchase on your own. A privately owned policy is portable, meaning you won’t have to worry about losing coverage if you change jobs. Generally, most individual plans will pay between 40% to 65% of your pre-disability gross salary. When paid with after-tax dollars, benefits are received income-tax free.


Call (610) 277-0200 to speak to an agent, and we will help you find the best available coverage for you.