Shopping for disability insurance doesn't sound fun, we know, but it's one of the smartest ways to protect yourself and your family financially.
For the uninitiated, there are two main types of disability insurance: short-term and long-term. For most people, it's not an "either, or" situation. Both can help replace your income if you become injured or ill and can't perform the regular duties of your job, or if you can't work at all.
If you support anyone — children, a spouse, or otherwise — and rely on a steady paycheck to pay regular bills or stay on track financially, you probably need disability insurance, explains insurance-comparison site Policygenius.
The good news is you can usually get short-term disability insurance through your job. Otherwise known as group disability insurance, it may be offered as part of your benefits package at little or no cost.
The short-term disability insurance you get through work will typically replace up to 66% of your salary, but usually less. The payments typically only last between three and six months and may be taxed as income if your employer covered part or all of the premium. And if you leave the company, you'll lose your benefits.
While group disability insurance is a nice benefit to have, coverage is obviously limited. If you financially support anyone other than yourself — or your regular expenses eat up most of your paycheck — you probably need a private insurance policy, too.
If you're unsure what your employer offers in terms of group disability insurance, ask your human resources team for details. If you do have short-term disability insurance but aren't satisfied with the benefit amount — the check you would receive every month while on disability — you may want to consider buying a private, long-term disability insurance policy to supplement it.
Benefits on a long-term disability insurance policy usually don't begin to accrue until at least 90 days after you become disabled — this is referred to as the waiting or elimination period — so they effectively pick up where your short-term policy leaves off.
Long-term disability coverage is customizable — you can choose how to define "disability" and how much you want to receive in benefits. Depending on the specifics of your policy, your annual premium should cost around 1% to 3% of your annual pretax salary, according to Policygenius. What's more, any benefit payments you receive while disabled are completely income-tax free.
The bottom line: Don't assume your employer-sponsored disability insurance policy is enough to replace your income. Take a few minutes to read through the coverage details and figure out whether you need more.
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