The Importance of Disability Insurance
Disability insurance is often called "paycheck protection" because it replaces a portion of your income if you become unable to work due to illness or injury. Despite being one of the most important types of insurance, it's frequently overlooked, leaving many people financially vulnerable to disability.
Understanding Disability Statistics
The need for disability insurance becomes clear when you consider these facts:
- 1 in 4: One in four 20-year-olds will become disabled before retirement
- Average Duration: Average long-term disability lasts 2.5 years
- Common Causes: Illness causes 90% of disabilities, accidents only 10%
- Financial Impact: Most people couldn't financially survive 30 days without a paycheck
Types of Disability Insurance
1. Short-Term Disability (STD)
Provides temporary income replacement:
- Coverage Period: Typically 13-52 weeks
- Benefit Amount: Usually 60-70% of gross income
- Waiting Period: 0-14 days before benefits begin
- Common Conditions: Surgery recovery, pregnancy, minor injuries
- Cost: Relatively inexpensive, often employer-provided
2. Long-Term Disability (LTD)
Provides extended income protection:
- Coverage Period: Until age 65, specific age, or number of years
- Benefit Amount: Typically 60-80% of gross income
- Waiting Period: 90-365 days (elimination period)
- Comprehensive: Covers wide range of disabling conditions
- Cost: More expensive but crucial protection
Key Policy Features and Definitions
Definition of Disability
Own Occupation:
- Most comprehensive definition
- Unable to perform duties of your specific job
- May work in another occupation and still receive benefits
- Typically available for 2-5 years, then switches to any occupation