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Privately Owned Disability Insurance: Protect your family while you live

Most people who work for an employer of any size have some sort of “disability insurance” on the job due to government requirements on the part of employers. However, the misunderstanding about what the boss’s disability insurance will accomplish puts about 45% of the American public at risk. According to the Washington Group on Disability Statistic, 19.4 % of American citizens have a disability of some form—the impacts ranging from inconvenient to completely incapacitating. That’s almost 1/5 of our population who must cope financially and physically with some kind of disabling condition! Yet nearly 80% of all individuals under the age of 40 have no disability insurance beyond what their employer provides. The consequences of this lack are staggering.

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Part of the problem is the result of a misconception about disability insurance and the fact that the term is used in a variety of ways. Another problem is with the way disability is defined. Briefly, a disability is any condition, permanent or temporary, that results in a person’s inability to perform an action that he or she would have been able to perform if the event or disabling condition had not occurred. Thus, if you are sick with the flu, you are temporarily disabled.  Short term disability addresses temporary disabling events such as illness or surgery. Because these events usually are the result of sickness or an accident, and because a person expects to get well, the type of disability that covers them is often called “sick leave.” It is referred to by a company as “short term disability” simply because most employers rely on an insurance company to replace your salary during the days that you are out.

Long term disability is also provided by an employer and is also paid by an insurance company. It kicks in when the short term disability runs out and usually requires you to file an application for long term disability with your HR office. This form pays a percentage of your income for a limited time, usually 2 to 4 years although a few companies will pay until you are eligible for SS benefits. Small to mid size companies may not offer LTD at all.

Disability Insurance is a plan you would purchase on your own that would restore part of your salary if you should become disabled. In most cases, you cannot collect more than your salary, so if you do have disability insurance on the job, you need to know what the benefit is and how it will apply.

Getting your own disability insurance

Private disability insurance is not Social Security disability. It is a plan you purchase with a company and is a contract between yourself and the insurance company. It is designed to pay up to 80% of your salary if you suffer a disabling event that will cause you to be unable to work for longer than 90 days. There are many different ways of defining disability and many variations on the way a plan will pay, so you have to study the plan carefully and make sure you ask questions of anything you don’t understand. For example, you may have a plan that will pay the full limits of the benefit for the initial period of disability, but will reduce benefits as time goes on in order to motivate you to return to work. Other plans may allow you to collect benefit while taking part time employment on a job you are able to perform. Still others will not allow you to collect any benefit if you are able to engage in any gainful employment whatsoever—similar to the terms of SS disability.

Private disability insurance is the most difficult type of insurance to purchase as the underwriting is more stringent than with any other kind of insurance. That being said, it is much easier to get if you purchase it when you are in good health and are fairly young. Your occupation is also a factor; those in management type jobs can often purchase disability insurance at a lower premium and with better benefits than someone whose occupation is considered high risk.

Regardless of the hurdles you may have to cross to purchase disability insurance, it is worth the effort. If you do have LTD on the job, the private plan will extend your benefit, giving you an income after the employer benefits are exhausted. If you to not have it from your employer, it is even more important. Working people are more likely to become disabled than they are to die at a young age.

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