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Understanding Disability Benefits

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The Social Security Administration estimates that one in every four of today’s 20-year-olds will become disabled before reaching the age of 67. If your employer offers worker’s compensation benefits, you could receive wages that were lost due to an on-the-job injury, however believing you’re fully covered through worker’s compensation benefits is a misconception. Less than 5% of disabling injuries or illnesses occur on-the-job, says Forbes.com. In fact, most disability claims are due to an illness.

So how do you prepare for a long-term illness that would prevent you from working and collecting a paycheck? Disability benefits can help with that.

What Are Disability Benefits?

Disability benefits are insurance contracts that allow you to collect a portion of your wages when you are injured or fall ill and cannot return to work. The benefits you receive are based on your average earnings prior to when your disability began. With Social Security Disability Insurance, you only become insured after you’ve worked long enough and have paid Social Security taxes. The amount of time you’re required to work before those benefits kick in depends on your age.

Not everyone will qualify for Social Security Disability Insurance, and oftentimes the receiver needs more assistance than what’s offered. That’s why many employers offer disability insurance in their benefits package. In fact some states, like California, require all employers to offer disability insurance to their employees.

Unfortunately, this coverage may still fall short. Those who want to sleep with peace of mind will often take out an individual policy, which may take extra items into account such as bonuses and commission pay that group policies don’t consider. With an individual policy, you could recover up to 75% of your previous income when you find yourself unable to return to work.

How Can Disability Benefits Help You and Your Family?

Disability plans are designed to relieve the financial burden on families when a loved one cannot return to work for a period of time. For instance, a single mother might require back surgery. Since she is recovering, she cannot return to work for several months. Without disability insurance, she may not schedule the surgery she needs because she is worried about putting food on the table for her little ones. With disability insurance, however, she is able to receive the medical care she needs without completely cutting off her income.

Long-term illnesses or injuries may occur as well. For instance, if your spouse was involved in an accident that resulted in a head trauma or mental illness that prevented him or her from working, you could receive long-term benefits to replace a portion of your spouse’s salary.

While you never want to imagine a member of your family suffering from an accident or illness, this type of insurance can give you peace of mind by eliminating the financial worry.

What Kinds of Disability Plans Are Offered?

Individuals can be covered under two types of policies: group and individual. Group policies are those you secure through an employer while individual policies are those you can take out on your own.

Policies can be written for the short-term or the long-term.

  • Short-term policies generally cover about 40% to 60% of your salary for anywhere from three months to one year. For instance, you might receive short-term disability payments when recovering from a broken leg or healing from complications due to pregnancy.
  • Long-term policies typically pay between 50% and 70% of your previous income. You may receive these benefits for a certain amount of time (i.e. until retirement age at 65) or for a lifetime, depending on the policy. Examples include suffering extensive injuries from a car accident or being diagnosed with a degenerative disease like multiple sclerosis.

If at any time you return to work, you would no longer receive these benefits.

How Can You Collect Disability Benefits?

The types of injuries and illnesses that qualify for benefits may vary depending on your policy. It’s important that if you do sustain an injury or are diagnosed with a debilitating illness, you work very closely with your physician. Because these claims are medical-based, you’ll need the backing of your doctor to provide the proper documents to your insurance company.

To collect your benefits, you will have to go through an application process detailing your condition. The standards for eligibility and the definition of “disability” will vary depending on the policy, so while a friend might receive benefits under her policy for the same illness, you may not qualify under yours. Be sure to check these definitions with your insurance provider so you understand the type of coverage you’re getting.

It’s also important to note that if you choose to apply for disability benefits, there may be a short wait period. Short term disability benefits, for instance, may not kick in until 0 to 14 days after you’ve become disabled, which means you would have to take some of your sick or vacation days until the coverage kicks in.

If you’ve been out of work longer than your short-term policy covers, you may have to receive benefits based on a long-term policy. In this case, the waiting period for a long-term policy to kick in is typically around 90 days.

Why Should You Consider an Individual Policy?

Employers who offer disability coverage generally only do so on a short-term basis. However, a long-term policy is usually a better idea if you have enough savings to live off of on the short-term. That’s because a long-term disability is a greater threat to your financial situation. Given these factors, it’s a good idea to purchase an individual long-term disability benefits policy if you want to sleep with peace of mind. Just be sure to check what type of coverage you already have so you don’t double up.

Disability insurance is not designed to replace your salary, but it can be a huge help to those who cannot return to work. Keep in mind that you may stop receiving disability benefits if your medical condition improves or if you begin earning too much money over your policy’s threshold. Are you considering signing up for an individual disability policy?

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