Whenever we consider insurance, the first
ones that come to mind are the two most common: home insurance and
vehicle insurance. There is not much of a choice as to whether you take
out insurance in these two instances, as the mortgage provider insists
on coverage for the house and the law requires that your car is insured.
The main factor that determines whether you can afford these two is
whether you are able to earn an income.It is virtually impossible for
anyone to both pay for the insurance and upkeep of their house and car
as well as their family, without a regular income. A way to ensure
against loss of income as a result of either permanent or temporary
disability is to invest in disability insurance. The following will give
reasons why you should have disability insurance as part of your overall
financial management plan and what you should consider when choosing a
policy to protect your home.
Social Security and Disability
There are many workers ih the U.S. who
assume that the social security system will look after everything in the
event that they become disabled. They make the mistake of not opting for
personal insurance cover. What most people do not understand is that
qualifying for the social security cover can be very difficult and very
time consuming, meaning that if you do receive any benefits, they will
take some time to commence. It must be the case that you cannot perform
any kind of job, not just what you were originally performing, to
qualify. If you can do any type of work, even for the minimum wage, you
will not receive benefits.
The Social Security Administration (SSA)
definition of "disabled" requires the following to be evident:
1. He or she is unable to engage in any
substantial gainful activity (SGA).
2. The incapacity is the result of one
or more medically determinable physical or mental impairments.
3. The incapacity has endured or can be
expected to endure for a continuous period of at least 12 months or to
result in death.
To obtain any form of coverage under
Social Security for a disability, the person in question must have
worked for a minimum of 20 of the last 40 calendar quarters immediately
prior to the date of the commencement of the disability. Any income that
is derived from investments or sick pay, or other forms of "passive"
income are not included in the consideration of "gainful activity"
income. There is, however, an income threshold above which a claim will
be declined as it would be considered to be "substantial gainful
activity". After all this, even if you are eligible, it is most likely
that the benefits will not cover your financial obligations.
Protecting Your Family and Income
When you are considering the factors
involved in your risk management, your emergency financial reserves or
savings and ability to raise capital in a hurry should be considered.
The maximum SSA is $1,600 per month - would that cover your costs? In
the 2004 U.S. Census, the average monthly household income was more than
double that - $3,700, which supports the claim that an extra income
source is an absolute necessity for the majority of workers in the U.S.
to support them if they became disabled. Make sure that you are clear
about the type of policy you are purchasing, be it short or long term.
"Short term" is defined as a period of time of less than 90 days, whilst
"long term" is time in excess of 90 days.
When you know which of these you have,
you should then ascertain whether or not the cover is adequate to your
needs. If the policy does not cover your income, an option for you is to
purchase a personal disability policy. As you age, the premiums
increase, so it is advisable to obtain cover whilst you are relatively
young and healthy. Some benefits may be taxable, depending on how you
pay the premium, but generally if it is paid with "afer-tax" dollars,
the benefits should be tax free. If the premiums are paid by your
employer, you may have to pay tax on any benefits.
These are some things you should
consider when looking into disability insurance:
What level of coverage should you take?
You should ensure that the coverage is
sufficient to continue your family's standard of living just prior to
the incident that caused the disability.Don't try to overcompensate by
taking out too much cover - you may be able to save on some expenses
such as transport to and from work each day, whilst there may be
unexpected expenses such as medications.In other words, weigh up both
sides of the argument before you make a decision on the level of
coverage.
What is an "elimination period"?
The elimination period is the amount of
time between when you have been deemed eligible and when the benefits
start coming in. This is usually around 90 days, so you should ensure
that you have the necessary funds to support yourself during this time.
Make sure that you have factored this into your personal savings
requirements.
For how long will an individual policy
pay a benefit?
There are numerous options for this and
as such you should choose the time period for the benefit. The
recommended policy would be one that pays you until you reach 65 as this
is when retirement benefits will most likely kick in.
What is the difference between "own"
and "any" occupation?
"Own" occupation is defined as work
performed in your current occupation, whereas "any" occupation is just
that - it includes all types of jobs. Therefore, you are best to choose
the "own" occupation, where it is offered as an option, for obvious
reasons.
The number of disability insurance
companies has decreased dramatically over the last thirty years. In
fact, in 2003 there were only 26 such companies from an original 535. It
has been estimated that in 2004 only 27% of American workers had a
disability insurance policy. At the same time, in excess of 20 million
out of the estimated 168 million Americans of working age had one or
more disabilities. It appears then that the cost and numbers of
disabilities amongst the working population is on the rise. How would
your family cope financially if you became disabled? If you are unsure
as to whether you and they would be covered, perhaps you should look at
another
insurance plan or obtaining extra cover from your existing
insurance.
