Tip: Business Interest. Businesses may purchase disability insurance to protect a business or dissolve its assets if an important employee or owner becomes disabled.
The Social Security Disability Insurance program paid out $142.8 billion in benefits in 2016. And with a rush of new applicants lining up each year, the system is expected to exhaust its reserves at the end of 2034 if changes aren’t made.1
Rather than depending on a government program to protect their income in the event of a disability, many individuals prefer to protect themselves with personal disability insurance.2
Disability insurance provides protection by replacing a portion of your income, usually between 50% and 70%, if you become disabled as the result of an injury or illness. This type of safeguard may have considerable benefits since a disability can be a two-fold financial problem. Those who become disabled often find they are unable to work and are also saddled with unexpected medical expenses.
What About Workers’ Comp?
Many people think of workers’ compensation as a disability safety net. But workers compensation pays benefits only to individuals who become disabled while at work. If your disability is the result of a car accident or other off-the-job activity, you may not qualify for worker compensation.
Even with workers compensation, each state makes its own rules about payment and benefits, so coverage may vary considerably. It might make sense to find out what your state offers and plan to supplement coverage on your own, if necessary, especially if you have a high-risk profession. Likewise, if you have an active lifestyle that puts you at a higher risk of disability, considering an extra layer of protection may be an option.
If you become disabled, personal disability insurance can be structured to pay a benefit weekly or monthly. And benefits are not taxable, if you have paid the premiums in full.2
When you purchase a policy, you may be able to tailor coverage to suit your needs. For example, you might be able to adjust benefits or elimination periods. You might opt for comprehensive protection or decide to define coverage more specifically. Some policies also offer partial disability coverage, cost-of-living adjustments, residual benefits, survivor benefits, and pension supplements. Since coverage is designed to replace income, most people choose to purchase protection only during their working years.
Even as changes are made to federal disability programs, they typically provide only modest supplemental income, and qualifying can be difficult. If you don’t want to rely solely on Uncle Sam in the event of an unforeseen accident or illness, disability insurance may be a good way to protect your income and savings.
Out of Commission
According to the most recent data available, about 18% of working-age disabled Americans are employed, compared with 65% of working-age non-disabled Americans.
Chart Source: ACLI Life Insurers Fact Book 2016