In the event of an accident, injury or illness that prevents you from working, disability insurance provides you with a percentage of your income. However, not every disability insurance policy is the same. In fact, almost all of them will make up different percentages of your income (usually between 50 and 70 percent) with different qualifying times and assistance periods. Qualifying times refer to the amount of time to wait before your benefits kick in. Benefit periods refer to the amount of time benefits are paid out, depending on your disability and the policy you take.
Most plans have a start date that ranges from 30 days to 120 days after an injury occurs. Coverage often focuses on illness or injury, and your plan cannot be changed without your consent until you are 65.
In general, experts agree that disability insurance is a must for people, whether you’re on a group plan with an employer or taking out an individual policy for yourself. But with so many plans available, it’s important to understand the differences between each. Here is a breakdown of the main types of disability insurance available:
• Group Disability Plans: This is the most common type of disability insurance plan and is usually offered through your employer. The lowest group coverage usually focuses on affordability, which is helpful, but this means benefits and payouts can vary widely. Keep in mind that group plans will usually not significantly meet your income level and this can be difficult when you are not able to work. They also usually have monthly or annual caps on the dollar amount payable and set maximum timeframes that can be shorter than you need. Group plans should always be read carefully, as you may often discover that what you intend to achieve is quite different from what you actually get.
• Individual Disability Plans: If you don’t have a group plan or you don’t like your group plan, you can always opt for the individual disability insurance policy. Without a group, pricing is often very different and will be tailored to your unique situation and needs, which can be both an advantage and a disadvantage. In general, plans are cheaper if you are young, healthy, and hold a low-risk job, or if you are older, work in a job that is considered unhealthy or high risk for disability. However, looking at your individual options means you can find a plan that fits your needs, wants and budget rather than a group plan. Doing research can result in a better policy and position for yourself.
Creditor disability insurance: Disability insurance is now commonly tied to debts such as car loans, leases, mortgages and lines of credit. With creditor disability insurance, your financial institution buys a group policy and when you get a loan from that institution, you become part of the policy. These policies make loan payments on your behalf instead of sending the money directly to you.
While group plans are generally cheaper, individual plans offer better coverage and can be tailored to your specific needs, including better terms and conditions compared to a group plan. Note that bonuses, terms and conditions are locked until age 65 unless changes are made with your express consent. Individual plans are an excellent option for self-employed individuals as well as professionals and managers, because they may have a “own occupation” definition of disability. This means that an insurance company cannot force you to work in another occupation based on your experience and education, an important trait for many professionals. Professionals should be wary of association disability plans because the terms, conditions, and rates on these group policies can and often do change at any time.
If you need disability insurance, be sure to research any policy you have or currently have.