Disability Insurance Articles
How Your Salary Affects Certain Disability Insurance Programs
2010-11-06
Disability insurance programs are something that many salaried people have never considered and may not even know much about. That can change in an instant if an accident or some other serious event makes it impossible to continue working and earning an income. Anyone who depends on his or her salary to pay the bills should know about this valuable form of income protection.
Not all disability plans are the same, even from the same provider because you choose the percentage of your salary that you want to insure. It is not a preset number. It is then up to the insurance company to apply its own set of calculations to determine first if it will insure the salary for the requested amount and then, the more involved determination of exactly how much your position or "job classification" typically pays. The percentage of your actual monthly salary that is insurable will vary from 60 to 80%. Most disability insurance programs prefer to limit coverage at an amount closer to the 60% range. Income from these plans comes directly from the insurance company and is not taxable.
Disability insurance programs are not designed to become a full replacement income for a worker who can no longer perform the functions of her job. They are designed to replace that portion of his salary needed to pay the regular bills, buy food and provide for other necessities, not to maintain his standard of living. The obvious consequence of this fact is that the more abundant one's lifestyle, the less likely it becomes that his disability insurance will be able to support it. That is not by accident.
The cost of premiums for disability insurance depends on several factors based on company policy and the policy holders' choices. The first of these is the benefit period; the two options are short-term and long-term coverage. In general terms, shot-term coverage lasts up to six months and long-term can remain in place for years with the average being under three years. All benefits end at age 65. Next, the percentage of income to be paid and the length of time for those payments have a significant effect on the premium rate. Payments do not necessarily begin immediately after an injury has occurred, the delay is called the elimination period. The length of the elimination period affects the policy premium. There are other important considerations that factor in to premium cost. Among them are the age and gender of the insured and his or her occupation.
For most people on salary, disability insurance programs are not a luxury but a basic component of their peace of mind and financial stability.