You may have already heard about the disability insurance offered by your employer during open enrollment periods. Employers often offer this as part of a benefits package to cover financial hardship should you experience a work-related injury or illness. But, many are unaware of how the coverage involved works and how it may not be enough to protect them in certain circumstances. Understanding all of that is what independent insurance agents are for.
An independent insurance agent can help analyze your current coverage, answer all of your questions, and find better protection to help you and your family avoid serious financial struggles. Independent insurance agents are able to guide you through the fine print of multiple insurance carriers and accurately compare which coverage best fits your unique needs. But first, here's a bit more background on voluntary long-term disability insurance.
What Is Voluntary Long-Term Disability Insurance?
When you see the word “voluntary” applied to insurance, it indicates that the insurance is an optional add-on to a basic disability plan offered by an employer that you can choose and pay for on your own. Therefore, voluntary long-term disability insurance is disability insurance you can add on to the basic disability insurance policy provided by your employer.
It’s common for employers to provide long-term disability insurance at little or no cost to you that pays up to 60% of your salary if you become disabled. They may also offer an additional policy you can purchase that raises the amount of salary covered to a higher percentage like 66%, or it may extend the length time the policy will pay.
Each state has its own types of disability coverage guidelines, so having an independent insurance agent to explain how disability insurance works for long-term care is a smart decision. For instance, some states such as California, require employers to offer state-funded disability programs through a workers’ compensation plan, while others like Arizona, place caps on how much you can receive weekly through these programs. Having your benefits described in clear language is why an independent insurance agent is a valuable asset to your well-being and long-term financial strategy.
Is Voluntary Long-Term Disability Insurance Right for You?
It’s tempting to think that only people with hazardous occupations need disability insurance, but that’s not true at all. While dangerous occupations and hobbies may increase the risk of becoming disabled, there are many ways you can become disabled other than through injuries. In fact, illnesses account for the majority of disability claims. In general, if you depend on your income to maintain your standard of living, then you should probably carry disability insurance.
But do you need long-term, or short? Here's a breakdown of the two with scenarios to help make sense of it all.
Definitions and Example of Short- and Long-Term Insurance:
|Type of disability insurance||Definition||Should you carry this coverage?|
Short-term disability insurance
|This is disability insurance that’s intended to cover you immediately after becoming disabled and then for a limited period until long-term disability insurance kicks in, usually months rather than years.||Do you have adequate emergency savings to cover all your household expenses for at least three to six months? If so, then you probably don’t need to buy additional voluntary short-term disability insurance. If not, then it might not be a bad idea, since disability insurance provided by your employer won’t cover your full salary.|
Long-term disability insurance
|This is disability insurance that’s intended to cover you for years after your short-term insurance expires. Since it’s unlikely you have emergency savings that would last for years, almost everyone earning a salary they depend on should carry long-term disability. Most long-term disability policies pay a maximum of 60% of your salary.||Can you get by on reduced wages for, say, three to five years? If not, then it makes sense to buy voluntary long-term disability to increase the amount it pays or the duration of time it covers.|
If you’re unsure of which type of disability coverage you may need, independent insurance agents can help. Experienced with a wide range of risk factors by industry and knowledgeable about state-specific guidelines, speaking with an independent insurance agent can clear up any questions you may have about deciding between short-term and long-term disability coverage.
Is There a Reason to Have Some Disability Policies Rather Than Others?
As with all insurance policies, one size doesn’t fit all. And as explained above, there are reasons why you should carry short-term vs. long-term disability. As a baseline, choosing to have a disability policy versus not having a policy in effect is a no-brainer.
However, since voluntary disability insurance is by definition an option offered by your employer, you’ll probably be restricted to the choices your employer has already made.
Given that the insurance industry is tightly regulated, very competitive, and your employer probably has knowledgeable professionals selecting the benefits they offer, there aren’t many reasons to choose some policies over others beyond the considerations already discussed.
That being said, most disability policies come with a variety of riders that you can choose, some for free or as a default with the policy, while others require higher premiums to enhance your policy.
Default and No-Cost Long-Term Disability Insurance Riders
|Type of disability rider||What does it do?|
|Guarantees the insurer cannot cancel your policy as long as you continue to pay the premiums.|
|Waiver of premium||Waives the premiums on your disability policy while you’re on a claim, until you’re able to return to work and resume making regular payments.|
|Automatic increase benefit||With no additional underwriting, this rider increases your monthly benefit for the first 4 to 5 years while you own the policy. This means that you’ll gain wider insurance coverage for increasing salary without any underwriting needed to justify the increase. Bear in mind that this is an optional increase that can be declined annually. If you choose to increase your benefits, your premium also increases.|
|Presumptive total disability||This rider ensures that your policy pays out the full benefit immediately if you incur a total disability, such as losing sight in both eyes, significant hearing impairment, or the reduced usage of at least two limbs. Additionally, this rider ignores the elimination period, the mandatory length of time that you must be disabled before you receive the benefit while working or not working.|
|Family care benefit||If you take time off of work to care for a loved one, this rider pays out the full benefit of your policy.|
|Survivor benefit/death benefit||Pays compensation to your beneficiary if you die while on a disability claim.|
|Good health benefit||Reduces the elimination period by two days each consecutive year you go without filing a disability claim.|
|Occupational rehabilitation||Helps pay for vocational training after a disability to assist you in returning to work. For those who have an own-occupation (see below) policy, this can be valuable to have while still working another job.|
Because these coverages are free or don’t cost extra, there’s relatively little reason to not choose each rider. However, be sure to speak with an independent insurance agent to determine whether each type of coverage is the right choice for you. For instance, carrying your own disability insurance may conflict with this type of coverage, or overcomplicate the claims process, possibly delaying benefits if an injury or illness should occur.
Disability Insurance Riders Recommended for Most Individuals
|Type of disability rider||What Does It Do?|
|This rider changes the qualification of a claim so it’s specific to your occupation. If you are able to work at another job, you would still receive disability benefits. Bear in mind that there are several different definitions of “disabled” when it comes to own-occupation policies. Speaking with an independent insurance agent can help define how your insurer and state defines these terms.|
|Non-cancelable||Guarantees the premium and prevents the insurer from modifying the price you pay.|
|Partial or residual disability benefit||Pays a benefit if you are still working in your own occupation, but experience a loss of income due to a decrease in hours or productivity.|
|Future purchase option||Lets you increase your coverage in the future with no evidence of medical insurability, avoiding the underwriting process again. If you expect your income to increase in the future, you should consider this rider to lock in your insurability. In essence, this means that no matter what happens to you medically, you can buy more coverage if your income goes up.|
|Student loan||This rider is aimed towards students, enabling you to purchase additional coverage to pay student loan balances while on a disability claim. For those who owe a significant debt to an educational institution, this rider can help offset defaulting on student loans.|
|Retirement protection||Covers payments you would have made to a retirement account, such as an IRA or a 401(k). The retirement protection rider also pays funds into an irrevocable trust while you’re on a disability claim, which can help protect payouts during retirement.|
|Social Security offset||This rider is designed to reduce premium costs in the event that you’re disabled by automatically applying for Social Security disability insurance (SSDI). If you qualify for SSDI, your insurer will subtract your SSDI benefit from the amount they pay you, which preserves the full benefit amount, but a portion of those benefits will come from SSDI rather than your insurance company, ultimately lowering the cost of your policy. Without the rider, you could potentially collect your disability policy’s full benefit and your SSDI benefit, but a higher premium may offset a favorable outcome. Due to the complexity of this rider, speaking with an independent insurance agent can give you some realistic projections on whether this rider is right for you.|
|Cost-of-living adjustment (COLA)||Increases the monthly benefit paid to you while you’re claiming disability insurance benefits, adjusting in accordance with the Consumer Price Index or other cost measurements. This rider is geared towards young policyholders that may be on a claim for a long period of time, where inflation costs and property values may outpace disability insurance payouts.|
|Catastrophic disability benefit||In the event that you experience a catastrophic disability, this rider pays an additional benefit amount if you meet the criteria, such as not being able to perform two or more activities of daily living, like bathing and eating.|
|Unemployment premium suspension||Suspends premiums while you’re unemployed, preserving the policy until you’re employed. However, coverage also is suspended while an individual is unemployed, so if you become disabled during that time, you won’t receive a benefit. Depending on your policy’s fine print, this could potentially mean a loss of a death benefit, so speak with an independent insurance agent to determine if this rider is right for you.|
|Return of premium||Returns a certain percentage of your paid premiums when you decide to cancel your disability policy. This means that a policyholder will receive something back if they’ve never used the policy’s benefits; however, a return of premium rider is usually pretty expensive.|
As you can see, there are a wide variety of riders to select from that can drastically change what happens to your disability coverage and finances. Of course, not every rider is appropriate for every individual, but it should be clear that there are a lot of ways you can customize your disability insurance policy. For these reasons and more, it’s important to speak with an independent insurance agent to make sure you have the protection you need.
Which Companies Offer the Best Rates for Disability Insurance?
As stated before, if your employer offers disability coverage as part of their benefits package, you’ll probably have little choice to select between insurers and available policies. However, if you want your own coverage, especially if your workplace doesn’t offer the best coverage or none at all, it’s important to find an insurer that offers the best rates for disability insurance.
The following insurers offer long-term disability coverage for most qualified individuals:
- The Hartford
- Liberty Mutual
- Mutual of Omaha
- State Farm
- Sun Life Financial
However, finding the most favorable rate can be elusive to those looking for the right insurer. Rates change from day to day. If you surveyed every possible policy available to you across the industry, the company offering the best rates today might not be the one offering the best rates next month. Doing that survey would also be extremely time-consuming and would require a thorough understanding of disability insurance.
This is the best reason of all to choose an independent insurance agent. They provide the knowledge and experience necessary to find the companies offering the best rates and will invest the time to do so, all at no cost to you.
Why Choose an Independent Insurance Agent?
A vast network of independent insurance agents can provide you with a large selection of disability policies that will provide you with the security you need to protect yourself and your family from an unexpected loss of income.
Independent insurance agents simplify the process of shopping for and comparing disability insurance. They will explain the complex terms for you, cut through the jargon, and make sure you understand the fine print.
But most importantly, they work for you — not one insurance company. They can compare policies from many companies and pick the ones that are best for you at the best possible price.
They’ll also be there for you in the future if your needs change or questions arise. They work for you, and their only job is keeping you satisfied now and in the future.
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Council for Disability Awareness
Social Security Administration