Disability Insurance
"Most People DO NOT protect their most important asset... Their ability to make money."
If you have a serious injury or illness, there's a good chance you will not be able to work. Depending on the circumstances, you might miss work for only a few days. But if it's serious you could miss a few weeks, a few months, a few years, or in some drastic cases, you might not be able to work the rest of your life.
You and your family are dependent on that income, and disability insurance (DI) is designed to protect your earnings.
The premium you pay for your disability insurance will be based on several factors. Many of which must be decided at the time of your application.
Age & Health
One of the largest factors in determining your premium will be your age and your health. Generally speaking, the younger you are, and the healthier you are, the lower your premium will be.
In addition, if you have a pre-existing condition, but are still fortunate enough to get a policy issued, your premium will most-likely be "rated-up." Meaning your premium will be artificially inflated to cover your pre-existing condition.
Waiting (Elimination) & Benefit Periods
The amount of time, in days, you are willing to wait before the insurance carrier processes your claim will have a significant impact on your premium. The longer the waiting period (ie. 90 or 180 days) the lower your premium.
Conversely, the amount of time, in days or years, that you collect benefits will also impact your premium. Typically, if you collect benefits for 30-90 days, you will have a significantly less premium than if you wish to collect benefits for 5-10 years.
Dollar Amount of Income Protected
Almost all disability insurance policies are designed to cover 60% of your taxable income. So naturally, the more income you make, the higher dollar amount you will be able to protect.
For example, if you make $5,000/month, you will be able to protect roughly $3,000/month. However, if you make $15,000/month, you will be able to protect roughly $9,000/month.
The higher the dollar amount the insurance carrier is required to protect, the more expensive your premium.
Riders & Extra Features
Do you want your benefit payments to keep pace with inflation? This is done by adding a Cost of Living Adjustment rider (COLA). Do you want to guarantee that your premiums will never increase? Add the Non-Cancelable rider. Do you want to keep receiving monthly benefits even if you are able to work, but in a different capacity? Make sure your policy includes the Own Occupation rider.
These riders, and many more, can all increase your total premium amount.
The Two Types of Disability Insurance
Short Term Disability Insurance
Short Term Disability Insurance is needed if you are a person who lives paycheck to paycheck, and you have no savings (or emergency fund) to fall back on when an injury or illness prevents you from working.
Long Term Disability Insurance
Long Term Disability Insurance is designed to pay you income if you are out of work (due to injury or illness) for longer than 3 to 6 months. In other words Long Term DI is ready to use when your Short-Term DI has expired.