Guest Author - Rhonda Cliett

Disability insurance is designed to replace a portion of your income when you are unable to work due to illness or injury. Most of us would prefer to think of ourselves as being somewhat protected from the type of tragedy that would leave us disabled. However, we must prepare for this possibility despite the unpleasantness of the subject. Having a basic understanding of disability insurance will enable you to examine your own situation to determine your individual needs.

There are two different types of disability insurance. The first type is short-term disability insurance which provides income for a short period of time such as two weeks to two years. The second type is long-term disability insurance which pays a monthly sum meant to replace income for an extended period of time. Some policies are non-cancelable which means the insurer cannot cancel the policy as long as the premiums are being paid on time.

How much disability insurance you need depends on your financial situation. Do you have adequate savings to pay your expenses should you become disabled for a short-term? Or, a long-term? Do you have disability insurance through your employer? If so, how much? Most policies available through an employer will be taxable when received. This means that if you have a policy meant to cover 50% of your income, the amount you receive after taxes will actually be less than 50%. Another consideration is that some of your expenses might change if you become disabled. Try to determine what expenses would be eliminated if you were no longer going to the office, as well as what new expenses might develop as a result of your illness. This is not an easy forecast and you may find benefit in seeking assistance from a professional. Once you have assessed your situation, you will be in a better position to make a determination regarding your needs. Many professionals recommend purchasing a disability policy which will replace at least 60-70% of your net after-tax pay, and preferably 80%.

Once you make the decision to purchase disability insurance you will want to compare policies with several different insurers. Items to compare are:
• Price vs the amount of coverage.
• Definition of Disability
• Whether the policy is non-cancelable. If it is a non-cancelable policy then the insurer cannot cancel it provided the premiums are paid on time.
• Length of time benefits are paid to you.
• Length of time you must be disabled before benefits begin.

Finally, investigate the insurance company before making a final determination. You want to find out if they have a good claims paying history and high customer satisfaction. You can research the company through The National Association of Insurance Commissioners.