Many people think only in terms of life and health insurance, forgetting about coverage if they become disabled.  The chances are greater than one in three that if someone is 21 or older, they will be disabled before they retire, according to the health insurance association of America.  Statistics also show that a 35-year-old is 3.7 times more likely to become disabled than to die. 

An individual’s paycheck may never be as much as he or she thinks he or she deserves, but the ability to earn an income is a valuable resource that must be protected.  Consumers should know about disability insurance, government programs that provide assistance to disabled individuals, and disabled people’s rights to freedom from discrimination in employment.  

The chances are greater than one in three that if someone is 21 or older, they will be disabled before they retire

Disability insurance gives an individual and/or his family financial protection in case that individual is so severely injured or ill that he or she is unable to work. Like life and health insurance, it is sold by commercial insurance companies. Some companies offer disability insurance to their employees as a fringe benefit. Depending on how many years a person has been with a company, and the type of benefits offered, it is quite likely he or she only has a short-term disability policy through work. In other words, if an employee becomes disabled, they might only get a certain number of weeks of disability pay for each year of employment. 

Some insurance carriers will limit the amount of coverage an individual can buy because the insurance company wants the employee to have an incentive to go back to work. The logic is that if an individual lets someone have too much disability insurance, he or she is opening the door to discretionary disabilities. In setting a limit on the amount of disability insurance an individual can buy, the carrier will also look at net worth and how much unearned income he or she is receiving. 

A 35-year-old is 3.7 times more likely to become disabled than to die

A disability-policy deductible is expressed as the”waiting period” from the start of a disability until benefits begin.  An individual generally can choose periods from 30 days to a year.  A person can synchronize his or her waiting period with their sick leave and emergency fund.  The longer the period, the lower the cost.  Waiting 90 days instead of 30, for example, trims nearly 50 percent off the basic premium.

Disability premiums are based on the individual’s age when he or she applies for the policy and do not ordinarily rise as he or she grows older.  The basic premium with a 90-day waiting period for someone age 40, in a white-collar job, runs about $465 a year per $1000 of monthly benefits.  Any policy worth considering will be guaranteed renewable, at no increase in premium, until the individual reaches the age of 65.

Disability insurance is designed to replace work-related income.

If the person’s earnings from his or her job represent less than 50% of his or her annual income, the chances of getting disability insurance are slim.  Disability insurance is designed to replace work-related income.  When selling a disability policy, insurance carriers take into consideration if the individual is engaged in a hazardous occupation, if he or she is self-employed, or if the medical history makes him or her a high risk to insure. 

The residual disability protection pays a pro rata benefit until the employee is back on his or her feet again.  Although they are no longer totally disabled, the residual disability provision in the policy recognizes that the income is still impaired by the illness or injury.  Proportionate benefits are payable when an individual suffers 20% or more loss of income because of an injury or sickness.

A policy may provide coverage if an individual is only partially disabled.

Disability polices are designed to pay benefits if an individual becomes, by their definition, “totally disabled”.  But most also have some provision for partial disability.  The policies offer two main choices in how they define “total disability.”  Most insurance policies divide disabilities into three areas.  First, the employee is not disabled if he or she can engage in some type of occupation.  It may not be an occupation that they were trained for but the individual can work at something.  Second, if the employee has the ability to do a widely defined skilled occupation, he or she is not considered disabled.  Third, the employee is considered disabled if he or she cannot do a specific skilled occupation.  A policy may provide coverage if an individual is only partially disabled. 

The insurance companies have policies that will protect an individual for life or until he or she is 65 years old, or for two to five years.  The longer the coverage, typically, the more expensive the policy is.  The policy can cover from two thirds or less of lost income or pay high benefits for up to two years, then reduce them.  Generally, a person will need to choose a plan that bases its partial disability benefit on the loss of income, not on the degree of infirmity.  If an illness or injury doesn't keep an individual off the job but cuts his or her earning by one fifth or more, the insurance should pay at least that fraction of its full benefits.  An option called “residual disability” generally covers such situations well and also can help a disabled beneficiary to gradually return to full-time work.