Disability Insurance

Disability income insurance, which actually complements health insurance, can replace lost income if you become disabled and unable to work as a result of an accident or illness. Statistically, people are more likely to become disabled for some period of time during their working years than they are to die during those same years, yet many people fail to buy disability income insurance.

There are three basic ways to replace income.

1. Employer-paid disability insurance
2. Social Security disability benefits
3. Individual disability income insurance policies

The amount of disability benefit provided by a disability insurance policy may be stated as a percentage of your monthly income (normally around 60%) or can be set as a fixed dollar amount.

In U.S. disability benefits paid out on individual disability policies are not taxed, but benefits from employer-paid policies are subject to income tax.

There are two types of disability policies: Short-Term Disability (STD) and Long-Term Disability (LTD).

1. Short-Term Disability - STD policies have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years. It usually covers initial periods of disability before long-term disability plans begin.

2. Long-Term Disability - LTD policies provide coverage in the event of extended disability and usually have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of the policyholder’s life (subject to the terms of the policy).