How does Disability Insurance work?
First, the short version. If you become disabled and can no longer work, disability insurance will kick in and replace a portion of your paycheck.
Now, the details. The concepts central to understanding disability insurance are benefit period, waiting period, and definition of disability.
Disability Insurance Key Concepts
Disability insurance policies are a lot like auto insurance policies in that once you start them, they stay in place as long as you continue to pay your premiums. Unlike auto insurance though, disability policies have a pre-defined stopping point. Most policies end around age 65. DIME policies end on the first anniversary of your policy date on or after your 67th birthday.
If you become disabled while you have a policy in place, you’ll begin receiving payments after the waiting period dictated by your policy. The payments will continue for the length of the policy’s benefit period.
Waiting period
The waiting period in a disability policy defines how long you have to wait before benefits become payable. While your options for waiting period can range from 30 days to 365 days, nearly all disability policies are sold with a 90 day waiting period.
For example, if you suffer a disability on January 1st and your waiting period is 90 days, you’d become eligible for benefits around April 1st, If you’re still disabled at the end of that 90 day waiting period, your payments would begin at that time.
The waiting period that you select affects the price of your coverage. The longer the waiting period, the less expensive the coverage. (Conversely, policies with shorter waiting periods are more expensive.) If you can afford to go with a longer waiting period, you’ll pay slightly less for your disability coverage.
When it comes to choosing a waiting period, ask yourself “If I become disabled, how long can I survive without my paycheck” before my DI payments start?
DIME policies offer 30, 90, and 180-day waiting periods.
Benefit Period
The benefit period of your policy might be the most important piece of the puzzle. The disability insurance benefit period defines how long you’ll receive benefits if you become disabled.
Shorter benefit periods are less expensive and longer benefit periods more expensive. A policy with a 1-year benefit period will make a maximum of 12 total payments, a 2-year benefit period- 24 payments, and so-on. (If your disability ends, your benefit will end.)
It’s important to note that the benefit that you receive is based on your income when you applied. If you apply at age 25, with an income of $50k, and become disabled at age 35, the benefit you receive is based on that $50k income.
DIME offers 1, 2, and 5 year benefit periods along with a to-age-67 policy.
What is a disability?
Disability insurance companies generally have two definitions of disability. They are total disability and partial disability. The definition that matches your situation will determine how much of your income is replaced.
Total disability
You are unable to perform the material and substantial duties of your own occupation, and you are not engaged in any other gainful occupation.
Partial disability
Partial disability is one that prevents you from performing some of the duties of your regular job, or perhaps you can perform all of your duties, but cannot do them on a full-time basis. As a result, you have a partial loss of income.
Additionally:
- Coverage is included in the base policy
- 12 months of benefits at 50% of total disability benefit
- Must immediately follow a paid period of total disability and have resumed employment
- Can’t receive total and partial disability benefits at the same time
What can Disability Insurance do for me?
Your income is what makes everything else possible. We insure our car, and our home, and perhaps other possessions. But without our income, we wouldn’t have these things, right? Disability insurance replaces your income. Call it paycheck insurance if you like.
If you become disabled and are no longer receiving a paycheck, disability insurance can kick in to ensure that you get to keep that car (and the insurance on it). Disability insurance might be the only thing that pays the mortgage while you’re healing from an injury, or during an extended illness. Disability insurance replaces income.
Consider the example below. In just 20 years of employment, an income of 75k per year adds up to over 1.5 million dollars… and that’s assuming you never get a raise!
For the person in the above example, a disability lasting just 2 years would result in the loss of $150,000 dollars. Disability insurance is a way to make sure this doesn’t happen.
Bottom line… your future income is a HUGE asset any way you measure it.
Disability insurance can be used to pay for anything you need. We always think about the big things, but the small things matter as much, if not more:
- Healthcare
- Groceries
- College tuition
- Utilities
Our DIME (Disability Insurance Made Easy) process allows you to get quotes in seconds and coverage in minutes.
- Benefit amount
- 60% of your income (up to a maximum of $5,000 per month). Sixty percent of some applicant’s monthly income may already exceed $5,000 monthly.
- Benefit period
- 1 year, 2 year, 5 year, or to age 67
- Waiting period
- 30, 90, or 180 days (not available with 1 year benefit period)
- Cost of living adjustment rider
- This optional rider increases the monthly benefit payable once you become disabled. Annual increases are based on the increase in the Consumer Price Index (CPI) subject to a 4% maximum increase occurring on the anniversary of the date of disability.
- Renewability of your policy
- DIME policies automatically continue (renew) upon the timely payment of premiums, from the Policy Date to the first anniversary of the Policy Date on or after your 67th birthday.
To get your free disability insurance quote, click the button below.
