Disability Income Insurance: the Basics
Disability income insurance is one of the least well-known types of insurance, but it is also one of the most important. To give you a better picture of what disability income insurance is and why you might need it, we sat down with brightpeak’s chief underwriter to give you the scoop.
Q: What is disability income insurance?
A: Disability income insurance insures your paycheck against the possibility that you become disabled. That means you get an “income” each month to replace the one you lost due to becoming injured or sick. In exchange, you make a monthly payment (called a premium).
Q: Who needs this type of insurance?
A: Anyone who depends on their paycheck should consider insurance. Could you and your family get by without the money you bring home each month? If not, disability insurance is a good option. Even those without an income may want to consider disability insurance for the extra expenses that may come with a disability, including medical expenses, therapy, or accommodating for special needs.
Q: Will I qualify for coverage?
A: During the underwriting process, we ask you questions to develop what we call a “risk profile”. This profile is based on your health history, your driving record, and any activities you participate in that could be hazardous. The process is similar to that of any other type of insurance—automotive insurance, for example, requires information about your driving record, previous accident history, your credit report, etc. After creating your risk profile, we’ll determine if we can cover you and what your premium will be.
Q: How much coverage do I need?
A: Adequate coverage would replace 50% of your take-home pay, however, it’s probably a good idea to cover as much of your after-tax pay as you can afford. Oftentimes, people think that their employer-provided coverage will be sufficient if they become disabled, but that’s not always the case. Your policy may cover you for 50-60% of what you earn but that number may be subject to taxes, leaving you with a lot less than you anticipated. One good thing about individual disability insurance is that what you pay for is exactly what you’ll get.
Q: Is it expensive?
A: The cost for the premium itself is very reasonable. You should also weigh the cost against what you gain from your protection. Think about the potential impact a disability could have on your lifestyle and your ability to earn a living. After only a couple months you could lose an apartment or struggle to afford the basic necessities, like food for your family. Disability income insurance protects your future from the unexpected for only a small monthly payment.
Q: When can I file a claim?
A: You are likely eligible to receive disability benefits if an illness or injury leaves you unable to perform the basic tasks your occupation requires. To file your claim, give brightpeak a call and we’ll send you a couple of forms to complete. Once you fill out the forms and provide verification from your doctor, return the forms to us. If you’re approved, you’re set.
Q: How long do I need to wait after filing for disability until I receive my benefits?
A: The timing of your benefits payments depends on the length of your “waiting period”. Your waiting period is the time between when you are first approved to receive your disability benefits until you begin receiving those benefits. This could be as short as 30 days or as long as 180. The longer your waiting period is, the lower your premiums will be. If you become able to work again during the waiting period, your claim will be cancelled.
Q: How long can I receive monthly benefits?
A: This one depends on the length of your “benefit period”. Your benefit period is the longest amount of time you could receive benefits. During this period, you have to remain disabled according to the policy definition of disability to continue receiving benefits. The benefit period could be 2 years, 5 years, or could cover you until age 67.
Q: How long of a benefit period should I choose?
A: A benefit period of 2 years will cover you for most disabilities, especially if you’re young. It’s also the least expensive option. A period of 5 years will protect you when you have a disability that requires a longer recovery period. A 5 year benefit could also give you the necessary time to retrain for a new occupation if needed. For example, if your job has a physical component that your disability does not allow you to complete, a 5 year benefit period could be helpful while you learn new skills or go back to school. Finally, having a benefit period of up to age 67 could protect you from just about anything. You could continue receiving benefits until you begin to withdraw social security and retirement benefits. The longer the benefit period is, the higher the premium will be.
Q: What sorts of injuries and illnesses does disability income insurance cover?
A: It covers all varieties of injuries and illnesses that may affect how you work—things like carpel tunnel syndrome, or a back injury from a car accident. Oftentimes, people skip out on disability income insurance because they are certain they will never be faced with a disability. But it can happen to anyone. Disability income insurance gives you an extra safety net in case that thing that “will never happen to me” happens to you.
Written by Kayla Johnson
This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).