Is Your Income Protected

A LOOK AT WHAT YOU NEED TO KNOW ABOUT DISABILITY INSURANCE

Benefits can last for either a set number of years or until retirement age. Check your plan’s details closely. Company benefits have been steadily shrinking in recent years. Group policies often limit the duration of benefits to only two years if you can’t perform your job duties.

If your policy looks insufficient, ask your employer whether you can pay for additional coverage. Otherwise, consider getting extra insurance from a private insurer to extend the duration or bring the coverage up to 70 percent or 80 percent of income.

Q: Why can’t you count on Social Security Disability Insurance to cover your needs if you are disabled?

A: The average disability benefit is just $1,111 a month, based on payments by the Social Security Administration this month to 8.8 million beneficiaries. And you only qualify for it if you are unable to work in any capacity, not just at your chosen occupation. A list of conditions that are considered disabling is available by doing a search for “disability evaluation” at the agency’s website, www.ssa.gov .

Q: What should you look for in a policy?

A: If you have a highly specialized job or can simply afford to pay the premiums, it’s worth paying extra to have an “own occupation” policy. This coverage pays benefits if you are unable to perform the major duties of your own occupation. To trim some of the costs, it may be advisable to obtain “own occupation” coverage for one or two years and “any occupation” coverage after that.

A LOOK AT WHAT YOU NEED TO KNOW ABOUT DISABILITY INSURANCE

The length of benefits is key, and will affect the cost of premiums significantly. Some policies pay benefits until age 65 or until your full retirement age
for Social Security benefits, others for two or five years. Seek out a noncancellable policy.You probably also want a policy that will pay “residual” benefits, which will compensate for a decline in income if you are able to work at a new job that pays less.

Q: How much does disability insurance cost?

A: Prices vary based on age, gender, occupation, amount of coverage and health status. Check with a broker to get quotes from at least three different insurers.

For someone who does not have coverage at work, a plan with all the extras including inflation protection costs roughly 2 percent to 2.5 percent of annual salary for a man, and 3 percent to 4 percent for a woman. Women pay more because they file claims more frequently and for a longer duration than men. If someone has coverage at work but wants earnings to boost benefits to 80 percent salary replacement, the annual cost is typically about 1 percent of the worker’s salary.