Disability Insurance and its Many Riders

Disability insurance is important to have so you can receive an income if you are unable to work for health reasons
Disability insurance is important to have so you can receive an income if you are unable to work for health reasons

Although we’ve previously written about disability insurance, we’re going to delve deeper by asking: What should you look for in disability insurance?  We’ve had a few questions come up lately about a couple kinds of insurance, so we’re going to write a a couple of posts on disability insurance as well as health insurance.  Today we’ll look at the basics of disability insurance and in the next post of this series, we’ll look deeper at the different rider options.

Disability insurance is extremely important to have.  Until the housing crises began (which I would guess has changed things), this was the most common reason for foreclosure.  Disability insurance provides you an income when you are unable to work for health reasons.  It’s three times more likely that you become disabled than that you die an early death.  Let’s look at the basics that you need to be aware of when considering a policy.

Monthly Coverage Benefit – This is the amount that the policy would pay if you were disabled.  You will only be able to get total disability insurance coverage approaching 80% of your current income.  That number does vary greatly depending on your occupation and current coverage.  You want to get as much as they will give you because it will be an amount less than you are used to earning.

Coverage Period – This is the amount of time that your Disability insurance would pay you (so long as you remained disabled).  For instance, if you have a 5 year coverage period, that would pay for the entire disability period for you if you were disabled for 4 years, but would not pay past 5 years if you were disabled longer than that.  Typical options are 2 and 5 year benefit periods as well as payments until age 65 or 67.  Ideally, it is better to have coverage as long as possible although in some professions or with some health back grounds, they do not offer that.

Waiting Period – This is the amount of time that you would need to be disabled before your benefits would begin to kick in.  The longer the waiting period, the lower the cost of the policy.  Because short term disabilities are very common, those policies can be very expensive.  Most people seem to prefer a 90 day waiting period because the price doesn’t drop too much more when you stretch it out to 180 or 360 days, but you will have to decide that for yourself when you see the numbers.

We will discuss more about riders in Part 2.

This post is Part 1 in the series Disability and Health Insurance. To continue with this series, click on Pt 2.

Photo credit: Slim Letaief

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