While you may call in sick every now and then, you rarely miss work. It’s easy to think that you would never miss work for an extended period of time, right?
Unfortunately, a lot of workers — particularly young and healthy ones — don’t consider that a serious illness or injury could prevent them from working. Truth is, your ability to earn an income is one of your biggest assets, so why not protect it the same way you’d protect your car or your home?
That’s where disability insurance comes in. Also called disability income insurance, it helps replace a portion of your income in the event you get sick for an extended period of time, or if you’re hurt and can’t work.
And if you think that can’t happen to you, consider that a 20-year-old entering the workforce has a one-in-four chance of becoming disabled before reaching retirement age, according to the Social Security Administration.
Here are the answers to some commonly asked questions about disability insurance.
1. HOW DO I GET DISABILITY INSURANCE?
Often employers provide disability coverage to replace a portion of your salary if you can’t work. If your employer doesn’t provide coverage or if it doesn’t provide enough (many employer plans only replace 50 to 60 percent of your salary) you can buy an individual policy as well.
2. WHEN COULD I USE DISABILITY INSURANCE?
Generally, you can use it to help replace a portion of your income whenever an illness or injury prevents you from being able to work for a period of time. That can include anything from missing work for two weeks to recover from a surgery, or missing work for several years because of cancer. Depending on the type of policy you get, you may even be able to cover some of your income until retirement age if, for instance, an accident leaves you physically unable to earn a paycheck for the remainder of your career.
3. HOW IS IT DIFFERENT FROM WORKERS’ COMPENSATION?
Workers’ compensation covers medical bills and a portion of lost income for employees who are hurt while on the job, or who become sick as a result of their working conditions. It is typically paid for by either your employer or the state. Disability insurance covers a portion of lost income whether a work or non-work-related illness or injury prevents you from working for a period of time. If you purchase disability insurance on your own, you pay monthly premiums for your coverage. If you get disability insurance through your employer, your company may cover the premiums entirely, or you may end up sharing the cost.
4. WHAT’S THE DIFFERENCE BETWEEN SHORT- AND LONG-TERM DISABILITY INSURANCE?
Short-term disability comes into effect when you are temporarily unable to work, like if you suffered a bad back injury that kept you out of the office for a few weeks. This is offered through an employer. Some companies also use short-term disability to help cover income for maternity leave. Short-term disability benefits can pay out anywhere from a few weeks to a year or more, depending on your policy, but your company might require you to use up your sick days before you can turn to the insurance. You may need to wait about a week or so after being out of work before your coverage kicks in, during what’s called the “elimination period.”
Long-term disability insurance provides coverage when you’re out of work for longer periods of time due to an illness or injury — like after getting diagnosed with a chronic disease or being in a car accident that took months or years to recover from. Depending on your policy, you could get benefits for a few years or even until retirement. Elimination periods for long-term disability coverage are longer than for short-term coverage, often between 90 and 120 days. Long-term disability coverage can also kick in after short-term disability coverage has ended.
5. HOW MUCH OF MY INCOME WILL DISABILITY INSURANCE REPLACE?
It depends on the terms of your policy, but generally speaking, employer-provided short-term disability insurance will replace about 80 percent of your base salary, while long-term employer disability typically replaces 50 to 60 percent. Keep in mind, though, if you ever use the benefit, what’s provided through your employer only covers your base salary (not any bonuses or commissions), and will be counted as taxable income. So in reality, your payouts may actually replace much less of your income than you originally thought.
6. CAN I BUY MORE COVERAGE THAN WHAT’S OFFERED THROUGH MY EMPLOYER?
If you want more income protection than what you’re being offered through work, you might want to consider getting individual long-term disability insurance, either in addition to or instead of your employer’s group policy. With a private plan, you may be able to cover 80 percent or more of your income — which can help both you and your family weather the storm better should you find yourself unable to bring home that much-needed paycheck.