Workers' Most Valuable Asset:
In a down economy, many people may not think their most valuable asset is their ability to work. But if illness or injury were to keep you from earning a living do you know how you would pay your bills? According to the Social Security Administration, more than one in four of today's 20 year-olds will become disabled before reaching retirement age. Yet, the U.S. Census Bureau finds that only 31 percent of U.S. private industry workers have long-term disability insurance as part of their insurance benefits. The National Association of Insurance Commissioners (NAIC) offers these tips when considering individual long-term disability insurance options.
Disability insurance is not the same as workers' compensation. In the case of disability insurance, the injury or illness does not have to be the result of a workplace incident or exposure. In fact, research by the U.S. Department of Education and the National Institute on Disability and Rehabilitation shows that the most common causes of long-term disability are heart disease, back injury and cancer, followed by anxiety and depression.
There are two types of disability insurance available to individuals: short-term and long-term. Short-term will typically replace a portion of the policyholder's salary from three to six months following the disability. Long-term will generally begin six months after the disability and can last a few years or even until retirement age.
Figuring How Much Long-Term Coverage You Need
Before purchasing long-term disability insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and then comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.
A disability can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount of coverage you could need.
Comparing Disability Policies
When considering long-term disability policy options, here are several definitions and benefits you should carefully compare to determine the best coverage for your future needs:
Social Security Benefits
Social Security pays disability benefits to people who cannot work because of a medical condition that is expected to last at least one year or is terminal, and for individuals who meet two earnings tests. After applying, it can take several months to process the application. The SSA bases benefits on average lifetime earnings. Unlike with a long-term disability insurance policy, family members may also be eligible for Social Security benefits. Remember, receiving Social Security benefits can affect the amount of benefit you would receive from a long-term disability insurance policy.
Finding Individual Long-Term Disability Coverage
If the long-term disability coverage your employer offers as part of your benefit package is not enough to cover your needs, there are options for purchasing additional individual coverage.
First, if you have coverage through work, ask if there is an option to increase coverage through the group policy. You will generally be responsible for the full cost of the increased coverage, but may not have to go through an underwriting process. However, the coverage is not likely transferable to another job.
If transferability is important or there is not a long-term disability option at work, check with professional organizations in your field. This type of coverage can be less expensive than an individual policy.
Finally, any individual can pursue long-term disability coverage with the help of an agent or directly with many companies.
comes to insurance, your options can be confusing and it can be difficult to
determine your family's needs. But you can get smart about your insurance
choices. Learn more about insurance from the NAIC's consumer education
Protect your investment. Before you write a check or sign paperwork for a policy, always call your state insurance department to confirm the agent and company you have selected are licensed. State department consumer representatives can also answer your questions about short- and long-term disability insurance. Find contact information for your state department here.
About the NAIC
The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. For consumer information, visit insureUonline.org.