Understanding Disability Insurance

The past week has proved to be nothing short of a nightmare for the McKinley family. George McKinley, the head of the family, met with an accident and the doctors amputated his arms to avoid the spread of the gangrene. George works as a software programmer with a Boston based company. He was on his way to meet a Boston based client when an approaching truck hit his car.

His wife Sara, who works as a librarian in the University of Boston, feels that she may find it difficult to run the house on her own . She reasons that George might get confined to home because he has been permanently disabled. In absence of George’s income, the family has  become financially vulnerable. Sara’s only hope is on the employer-paid disability insurance that will entitle George to receive 65% of his income for the next two years.

Life is unpredictable. Accidents, diseases, sickness can leave us disabled either permanently or temporarily. This disability can rob us of our income and it might leave our dependents and us in a financially vulnerable position.  Therefore, it is essential for everyone to opt for a disability insurance policy.

According to the Insurance Information Institute, “Disability insurance pays an insured person an income when that person is unable to work because of an accident or illness.”

Experts state that disability insurance should be opted by the main breadwinner of the family so as to prevent a financial hardship if he happens to lose his job due to a disability.

In the US, most states require that the employers should provide some kind of disability insurance that provides the employees with an income for a short period. The income from such an insurance policy can help the policyholder to tide over a short-term loss of income. Take the case of Jonathon who works for the sales department with a Boston based cookie producer.  When he suffered a dislocated shoulder in a freak accident and was out of work for 20 days, he continued receiving 45% of his salary from his disability insurance policy.

One will have to remember that the amount you receive from your disability insurance policy will never be equal to your salary. Insurers normally pay only 50% to 70% of the income earned by you so as to motivate you to get back to work at the earliest.

Jane Stuarts, a Boston based insurance agent informs that when it comes to the types of disability insurance policies, there are usually two types of policies offered by the insurer viz. Short-Term Disability policies and Long-Term Disability policies. When James, a driver who works for Kentucky Fried Chicken’s Boston branch, was injured in an accident, his disability insurance policy continued paying him for the entire year. But James’s injury took almost 2 years to heal and for the next full year, he had to do without any income as he was covered by a Short- Term Disability policy. So, when it came to insuring his younger brother Tim, James decided to opt for a long –term disability insurance policy that guaranteed an income for a lifetime.

You should also remember that both short-term disability insurance policies and long-term disability insurance policies have a different waiting period. Waiting period can be defined as the time that should pass from the date of issue of the policy before the benefits become payable to the policyholder. Short-term disability insurance policies have a waiting period of 1 to 14 days while the waiting period for long-term disability insurance policies range between 60 to 730 days. The premium payable on a disability insurance policy is inversely proportional to the waiting period. However, you need to remember that you should opt for a long waiting period only if you can do away without a regular source of income for a long time.  

Premiums payable on disability insurance are also influenced by other factors such as age, sex, nature of employment and income of the policyholder. Kevin, a cashier with Tesco’s Boston branch pays a lower premium than his twin brother Neil, who works as a construction worker with a Boston based builder. This is because the insurer believes that Kevin has a lesser chance of injuring himself than his brother Kevin, who often has to deal with hazardous situations.

According to Mandy, a Boston based financial planner, it is important for a person to apply for a disability insurance policy if he or she happens to support a family. Otherwise, your family may have to confront a situation like the one faced by the McKinleys.

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