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So... Exactly what is Disability Insurance?

Posted by Dan Gillis on June 29, 2016
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A disability can happen at anytime and anyplace - not just at work. A fall off a ladder at home after work or on the weekend. A car accident while driving to work or on vacation. A heart attack that you’re recovering from and your doctor says you have to take it easy and slow down.  
 

How will you replace your lost income and support yourself and your family?

Most people insure their home and their vehicle against damage. But relatively few consider insuring the most important thing of all: the person that earns the income to afford the expenses in life... themselves.

If one suffers an accident or sickness and can't go back to work full time or can only sustain part-time hours, there is usually a significant amount of uncertainty associated with the situation. The bills won't stop on account of one's disability, so how will they be paid? How long will the disability last? When will the person be able to return to work full time?

What is Disability Insurance?

Simply put, disability insurance is a policy that replaces your income if you can no longer work because of an accident or sickness. This is different from life insurance because the person in question is still alive, but injured sufficiently to prevent them from working. That's why disability insurance is often referred to as "living benefits insurance."

It may be easier to think of disability insurance as "income replacement" insurance. The income is called the "benefit" and is paid in monthly installments as long as the person remains disabled (generally up to the age of 65 years).

How Does it Work?

Disability insurance begins to pay when your income is interrupted because of a disability from an accident or a sickness. It doesn't matter when or where the accident or sickness initially occurred; the trigger for a disability claim is your inability to do your work. For example, you could become seriously injured on your vacation and still be eligible to claim.

Like any insurance policy you will need to apply for disability insurance at a time when you are in good health and free of any disabilities. The insurer looks at your current and past health history and the kind of work that you do. It is the combination of your occupation and health that is used to determine if you are insurable.

Given the many variables associated in determining an accurate, individualized disability insurance policy, this type of insurance is generally more complicated to establish for a person as compared to life insurance. But, make no mistake, disability insurance is just as important, if not more so.

The initial determination of being disabled must be made by a medical doctor; and the ongoing determination as to whether or not a person remains disabled is also at the discretion of a certified medical physician.

How Much Does it Cost?

The cost of disability insurance will vary somewhat significantly from person to person based on such factors as age, gender, medical history, occupation, personal activities and coverage amount. This is why an individualized professional evaluation of each person must be undertaken by a qualified insurance advisor. As such, a specific monthly premium that one can expect to pay can't be estimated here: the cost is specific to each person. That said, there is no fee to apply for disability insurance via an insurance professional.

How Important is Disability Insurance?

Disability insurance is one of the first pieces of the puzzle that needs to be addressed in a person's financial plan. Protection from disability forms the foundation of a financial plan, since income replacement insurance is arguably the most important protection to acquire. If something happens that interrupts your income, it is the disability insurance that will maintain and replace your earned income paying the bills and supporting your financial house.

As mentioned above, disability can occur to anyone at anytime. Most people insure their house and their car, but sometimes neglect to insure themselves from the inability to work due to accident or sickness. Without income, individuals face the prospect of losing all of their assets and placing themselves and their family in a very difficult situation. For these reasons, disability insurance is something everyone who is earning an income should strive to acquire, despite a longer application process.

Interested in learning more about Disability Insurance and how it can help you and your family? Download our free ebook: A Beginner's Guide to Disability Insurance.

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