Disability insurance is a plan which pays out periodic benefits to the insured in the event that they are unable to work. This insurance plan can replace a worker’s income by up to 65 percent. A study by the Life and Health Insurance Foundation for Education showed that 1 in every 4 workers will have a disability that will render them incapable of working for at least 90 days. Employers can take out this policy for their workers, which covers their greatest asset which is their ability to earn an income.
There are basically two types of coverage which also explain how this insurance product works.
Short-term Disability Policies
Employers can buy short-term disability policies for their workers. These plans are designed to offer income to workers who are disabled as a result of an illness or injury. Short term plans are categorized in terms of weeks. The industry standard is set at 26 weeks. During this period the insurance cover will provide income and can replace the worker’s income by up to 80 percent. In some companies, the employees may be required to pay a modest cost towards premium payments.
Long term Disability Policies
If your short term cover runs out and you are still unable to resume work, then the long term disability plan kicks in. This plan is normally effected when workers are unable to report to work for an extended period of time usually set at 180 days. Generally, long term policies cover up to a maximum of 60 percent of your income. Fortunately, the cover can last for several years. Most insurers provide benefits to policy holders till they attain the age of 65. Benefits are calculated as a percentage of the worker’s income prior to the injury or illness.
Benefits of Disability Policies
• In the event of an illness or injury, the benefits provided can act as a financial lifeline.
• The right policy can provide funds to cater for disability related costs such as specialized medical equipment which are not covered by your health insurance.
• A disability policy gives you much needed peace of mind and you can concentrate on getting better.