Disability Income Insurance

Disability Insurance typically provides disability income benefits that begin at the end of a special waiting period and that continue until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits.

Frequently Asked Questions:

1. What are the chances of becoming disabled?
The odds are one in four that a 35 year old (higher for women) will miss work more than 90 consecutive days due to any injury/sickness. Many disabilities will last 5 years, others lifetime.

2. Does it cost too much?
The average annual cost is typically 2-4% of income, for woman and 2-3% of income, for men.

woman on a wheelchair

3. Will Social Security take care of me?
Social Security initially denies about 65 percent of all disability claims.

4. How much coverage (monthly benefit) do I really need?
Normally, coverage should be provided for those overhead items such as rent, food, other insurance and the like. Lifestyle and other sources of income are factors. These factors typically range from 60-70 percent at pretax income.

5. What factors affect the premium cost?
Among many factors, the most important are (1) the amount of weekly or monthly benefit purchased, (2) the length of the elimination (waiting) period, (3) the length of the maximum benefit period, (4) whether or not the disability insurance benefits are coordinated with social insurance benefits, (5) the occupational class of the insured, (6) the definition of disability, and (7) whether the policy is noncancelable or guaranteed renewable.

6. Are there limits to how much coverage I can have?
Normally, 50-70% of your salary can be covered. The higher the income after $100K the lower the percentage.

7. What is the federal income tax treatment surrounding benefits received from a disability policy?
The answer depends on who paid the insurance premiums. if the insured paid the premiums with aftertax dollars, then the disability benefits should be received income tax-free. In contrast, if an employer paid part or all of the premiums, then an equivalent portion of the benefits are generally taxable to the insured. Your tax advisor should be consulted with respect to the probable income tax treatment of any disability income coverage that you purchase.

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