Disability Insurance

Background

Your most valuable asset is not your house, car or retirement account. It is the ability to make a living. Disability insurance pays a portion of your income if you can’t work for an extended period because of an illness or injury. According to the Social Security Administration, more than one in four 20-year-olds will experience a disability for 90 days or more before they reach 67. Disability insurance comes in many forms and can be obtained through a wide range of providers for a wide range of prices. The price of a disability insurance policy depends on the length of the elimination period, the benefit period, and how strict the definition of disability is under the policy. Laws Financial can help you and your family find the plan to works best for your unique situation. 

What Are the Types of Disability Insurance?

There are two primary types of disability insurance: short term and long term. Below are some key differences you should be aware of:

Short-Term Insurance

  • Typically covers around 60-70% of your salary
  • Usually last for 3-6 months depending on your policy
  •  The first payout is around two weeks from when the doctor confirms you have a disability
Long-Term Insurance
 
  • Typically covers around 40-60% of your salary
  • Can last five years or longer if your disability continues
  •  The first payout is around three to six months 

“If you're proactive, you focus on preparing. If you're reactive, you end up focusing on repairing.”

– John Maxwell

Long-Term Disability Insurance

Long-term disability (LTD) is a relatively straightforward product that protects you during lengthy periods of disability when you’re unable to work. It’s often described as income replacement insurance, because during the disability period when you’re not getting a paycheck, your long-term disability insurance will pay you a monthly amount. That amount will typically come close to your take-home after taxes. It is generally recommend to get as much coverage as you can—around 60–70% of your income. If you take out your own policy, it will stay with you whenever you change jobs. One item to be aware of with long-term coverage is the elimination period (how long you have to wait before that first check arrives after the doctor confirms you’re disabled). Because long-term disability is designed to kick in after short-term disability, there is usually an elimination period of several months. The average time it takes to process a long-term claim is around 90 days.

Short-Term Disability Insurance

Short-term disability insurance (STDI) is an insurance product that replaces your income for a short period of time in the event that you experience a disability. A disability is any medical condition that stops you from working. It’s a common misconception that disabilities only occur because of workplace accidents; in fact, most disabilities are caused by chronic conditions like back injuries, cancer, and heart disease. Payments with STDI only last for a few months to a year. The elimination period is normally around two weeks, versus 90 days for Long-Term disability insurance.