What Is Disability Income Insurance?
It is insurance that provides you with income if you ever become disabled. It helps protect against family financial disaster by providing income to meet everyday needs during a disability.
It comes in THREE main forms:
Government-sponsored programs: These include workers’ compensation and the Social Security Disability Insurance (SSDI) program.
Private employer-sponsored group disability plans: This coverage is an important benefit for many employees. It provides income replacement that enables employees who are disabled to pay bills and maintain their lifestyle. Employers may sponsor short- or long-term disability coverage, or a combination of both. The employer often pays for all, or part, of the premiums for the coverage.
Private individual disability income policies: Individuals pay for these policies. They guarantee income when there isn’t enough employer- or government-sponsored coverage.
How do we define ‘Disability’?
Be sure to determine how various policies define disability. Policies vary. Some pay benefits if you can’t do your regular job. Others pay only if you can’t work at all. Extent of Disability (Total or Partial): Some older policies require that you be totally disabled before payments begin. Partial disability sometimes is covered for a limited time. But, most often, partial disability is covered only if it follows a period of total disability from the same cause. Some policies may not require total disability before partial disability payments are made.
Why you should take advantage of EDBFS’s free consultation:
Whether you are an employee or an employer, one of our insurance agents can help you analyze your sources of disability income, determine how long it will take to receive various benefits, and determine whether additional coverage would be wise.
What to Expect When Applying for Coverage
When someone applies for individual disability income coverage, one of our insurance agents will require you to provide information including general information, medical history, income, and employment. Occasionally, your application for individual disability income insurance may require one or more medical tests—such as an EKG. You will also likely be asked for blood testing, including a test for exposure to HIV (the virus that causes AIDS). It is very likely that you will be asked to provide copies of income tax returns.
Are There Any Tax Considerations?
In general, if you pay the premiums for an individual disability policy, payments you receive under the policy are not subject to income tax. If your employer paid some or all of the premiums, some or all of the benefits may be taxable.
Business Protection for Small Business Owners
Disability insurance is particularly important if you own a small business. In addition to standard disability income replacement, business protection is also available. There are recovery benefits that pay after you return to work full time. These apply during the period in which you are re-establishing a customer or client base. There is overhead expense coverage that pays for certain office expenses.
For jointly owned businesses, there is a disability buy-out policy that provides funds for one partner (or the business entity) to buy a disabled partner’s share of the business. And there is key-person insurance. This protects a firm against the loss of income resulting from the disability of a key employee.