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 Types Of Disability Insurance Coverage

 


Given that disability coverage benefits are determined by an insured's occupational class which in turn determines the length of the elimination period, benefit pay-out period, and any exclusion rider/riders that may be attached to the policy, the following disability insurance types may be found in the insurance industry. 

Group Short Term Disability

Employer sponsored short-term disability programs are for non work related disabilities. They provide at partial income protection. The chance of that an employee becoming disabled and  unable to work for a short period is higher than the chances of becoming totally and permanently disabled. Therefore, short term disability insurance is a more common group disability benefit than long term disability.

Like other employer paid group benefits, an employer's shot term disability program may not cover all employees. Groups may be established by job classification. Eligibility may require an employee to work at least 30 hours per week, and to have been employed for a certain period of time. Short-term disability coverage usually has an elimination period of  eight days. Common benefit pay-out periods pay to a maximum of  26 weeks for each period of continuous disability at 2/3 of the insured employees income.

Group Long Term Disability

Long Term Disability insurance provides participating employees with income protection against disabilities occurring from a covered physical illness, injury, pregnancy or mental disorder.

Employers can usually customize their group long term disability benefit coverage programs:

  • Up to 70 percent salary replacement
  • Maximum benefit amount up to $25,000 per month
  • Benefit waiting periods ranging from 30 days to two years
  • Definitions of disability covering own occupation, any occupation and "zero-day" partial disability
  • One, two, three, five-year and to age 65 own occupation periods
  • Own Specialty Definition of Disability for physicians and attorneys
  • Employee Assistance Programs are usually included for groups with 15 - 2500 covered lives
  • Assisted Living Benefit (usually an option)
  • Housing Assistance Benefit (usually an option)
  • Lifetime Security Benefit (usually an option)
  • Medical Expense Benefit (usually an option)
  • Child Care Benefit (usually an option)

Long Term Disability Plans usually include a number of features that help to encourage employees to return to work.

  • Rehabilitation plan provision usually pays for some or all of the expenses incurred by an employee for approved training and education; family care; and job search and other job related expenses that support a return to work.
 
  • Reasonable accommodation expense benefit: Reimburses employers up to $25,000 for approved worksite modifications that are made on behalf of a disabled employee and enable the employee to return to work.
 
  • Return to work incentive: Provides employees with an incentive to return to work by enabling them to earn up to 100 percent of their pre-disability income through a combination of monthly benefits and work earnings during the first 12 (or optional 24) months after returning to work.
 
  • Return to work responsibility: Establishes a clear expectation for partially disabled employees to return to work if they can earn at least 20 percent of indexed pre-disability earnings.
 
  • Temporary recovery: Allows employees who suffer a relapse and become disabled again from the same cause or causes to reopen their claims without serving a new benefit waiting period.
 

Taxation On Group Disability Benefits

If the employer pay for the coverage the benefits are taxable to the employee. However, if the employee pays for the coverage as in a voluntary short term / long term  employer group disability plan, then the benefits received at the time of disability are tax free.

Individual Policy Coverage

Short Term Coverage


Short Term Disability coverage usually pays benefits to a maximum period of 6 months.

Short Term Disability Insurance is a supplemental insurance policy that starts paying monthly benefits after the time between your injury or illness occurs and the start of benefits. This is  known as an elimination period.

The amount of monthly benefits the insured receives depends on if the insured is totally or partially disabled and the level of benefits the insured chooses when the policy is purchased.  Benefits usually continue as long as the insured is under a doctor's care and is unable to return to work and will continue for the benefit period chosen. 

One  should consider purchasing short term disability coverage if:

1. one is without emergency savings equal to 6 months of expenses?    
2. savings is set aside for long-term financial goals and is not an option to use for a disability?       
3. one has large debts that require monthly payments: mortgage, auto or credit card loans balances are examples?    
4.one is family’s sole bread winner?  

Other forms of shot term disability coverage may be available in group or individual form.  A hospital indemnity policy, were the insured is paid while in the hospital is just one example.

Long Term Coverage


When you decide you need Disability Income Insurance, here's where to start... 
First, look for the signs of quality coverage.

      
Non-cancellable coverage:


What good is an insurance policy if
it can be cancelled just when you need it most? To avoid this possibility, choose a policy that's non-cancellable and guaranteed renewable to age 65 as long as you keep
paying premiums on time. That also means that premiums are guaranteed until age 65.

Guaranteed renewable for life:

Although premiums may
increase after age 65, your policy should be conditionally renewable for life, as long as you are at work full time. The very best coverage has no age limit
for renewability.


Next, look for the kind of coverage that's right for you.

      There are two basic kinds of DI insurance available, Income Replacement and Own-Occupation ("Own-Occ").

      Income Replacement

This kind of insurance pays benefits if you suffer a loss of income due to a disability.
The
drawback to this type of policy is that it does not cover you for the loss of a skilled profession, such as architecture or law, which requires years of specialized, difficult and expensive training. These professionals may be able to earn a significant income teaching or writing, for example, if they are disabled but feel they should be compensated for the loss of the career they invested in so heavily. This is why many professionals and business owners choose the other type of DI insurance,
Own-Occupation.

      Own-Occupation

This type of disability insurance policy pays benefits if you can't  perform "the material and substantial duties of your occupation" because of sickness or injury. "Your occupation" means your regular occupation at the time you become disabled. With Own-Occ coverage, you are considered totally disabled and receive benefits accordingly as long as you are not able to work in your own occupation even if you are performing unrelated duties in a different occupation.^

The Total Disability Benefit

      The Total Disability Benefit will be paid at the end of each month while you are totally disabled, after what is known as "the elimination period" has elapsed.


Terms You Should Know:

Elimination Period and Accumulation Period

      An elimination period functions somewhat in the way a deductible amount does on other types of insurance. Rather than making you responsible for paying a certain dollar amount before coverage starts, however, it is a period of time you must wait after you become disabled before your benefits begin. Choices of elimination periods are generally from 1 month, 2 months, 3 months, 6 months, 1 year 5 or 2 years.5  The longer the elimination period, the lower the cost of your coverage.

      For each elimination period, there is a corresponding "accumulation period."

      Starting with the first day of disability, the accumulation period is a set period of time during which you need to accumulate enough days, weeks or months of disability to satisfy your elimination period. For example, if you return to work after a period of disability that's shorter than your elimination period but then become disabled again while you are still in the accumulation period, the time you were originally disabled still counts toward the fulfillment of your elimination period. For instance, if your policy has a three-month elimination period, you'll have seven months in which to accumulate those three months of disability.

Related Topics                

               
  Types of Disability insurance coverage   
                
  Renewability  Provisions  
               
  Benefits       
                
  Definition of Total Disability   
                
  Optional Benefits
                  Residual Disability Benefits   
                
  Other Policy Benefits   
                  Terms
                  Occupation Definitions   
                
  Occupation Class Look Up 

Lewis Fink is licensed as insurance agents offering these benefits in the following states: Alabama - AL, Arkansas - AR, California - CA, Colorado - CO, Connecticut - CT, Delaware - DE, District of Columbia - DC, Florida - FL, Georgia - GA, Idaho - ID, Illinois - IL, Indiana - IN, Iowa - IA, Kansas - KS, Kentucky - KY, Louisiana - LA, Maine - ME, Maryland - MD, Massachusetts - MA, Michigan - MI, Mississippi - MS, Missouri - MO, Montana - MT, Nebraska - NE, New Mexico - NM, New Jersey - NJ, New York - NY, North Carolina - NC, North Dakota - ND, Ohio - OH, Oklahoma - OK, Pennsylvania - PA, Rhode Island - RI, South Carolina - SC, South Dakota - SD, Tennessee - TN, Texas - TX, Utah - UT, Vermont - VT, Virginia - VA, and Wisconsin - WI.

Not all insurance products from all insurance companies are available in all states.

Note:  We do not provide legal or tax advice. The general information presented on various tax aspects contained in this site are not intended to be relied upon as tax advice. Individuals should seek the advice of a qualified tax professional regarding the taxation of these benefits as they apply to your particular situation.  These benefits are offered in all states except: AK, HI, & WY. License #'s: CA: OC38446 MT: 29724 F00-0283-LC 


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