The average working American stands an 85 percent greater chance of falling victim to a debilitating illness than falling or suffering some other injury on the job. Yet most people do not have the protection to continue their income in case they are not able to work for an extended period of time.
But such protection does exist, said Stephen Hill, a board member of the Detroit chapter of the National African American Insurance Association. The protection is called disability insurance and policies are available that can replace about 66 2/3 percent of your income or salary, and there are typically tax benefits, if you pay for the policy yourself.
But before you run out and buy disability insurance, Hill said there are few things you should do first.
“The first thing I recommend is to contact a financial planner. These are individuals specifically licensed to give financial advice without actually selling an investment product. They will go over your current financial situation and also look forward toward your financial goals. They’ll give you recommendations on what kind of financial programs or products to purchase or the investment focus you should have to reach your financial goal.”
Then you have to decided what type of protection you need, explained Hill, adding that there are long and short-term policy.
“Many employers purchase short term (up to five years) or allow you to buy it on a voluntary basis,” said Hill adding that another consideration is the elimination period. “This is the time period when you had a qualifying event and made a claim until the policy actually begins to pay out. That can range from two weeks to 30, 60 or 90 days or even higher increments. It’s all based on cost. The longer the elimination period, the less premium you pay.”
Hill said that if you voluntarily purchase such a policy, it is paid for with after-tax income, and the benefits from such a policy are typically tax free. On the other hand, if your employer purchases the policy for you, this is generally pre-taxed income, and any benefits paid out are subject to taxation.
The other type of policy is long-term disability, and this typically is for five years or longer up to age 65. Long-term disability covers 60 to 90 percent of your income depending on the language of the policy.
Under this type of coverage there are factors they will consider–are you able to fulfill the duties of your own occupation? If not they will pay for the coverage.
However cautions Hill, there are some policies that say that if you can fulfill the functions of any job, they may ask you to do so.
Another factor to look at is the advantages of purchasing a policy yourself versus allowing an employer to do so are that often a company will ask you to use your sick or vacation time up first before tapping into the policy, Hill said.
The price policy depends on a number of variables said Hill including your level of income, what percentage you are trying to protect, the length of the elimination period, and the length of the term of buy.
Also be aware that life insurance is not income protection, and that people as young as those fresh out of high school can purchase such insurance.