An unexpected accident or a sudden illness can restrict one’s ability to work and earn. If a person has disability insurance, it will help them cover a portion of their income, meet expenses like tuition, mortgage, rent, groceries, and utility bills, and run their household without disruption. While employers usually provide disability cover, one can  also  buy a plan from the government, a private insurance company, or a registered insurance broker.

Important things about disability insurance
Disability insurance, also called disability income insurance, is a vast subject. One has to spend considerable time understanding the different types of plans, eligibility, disabilities covered, benefits, premiums, and claims.

Purpose of disability insurance
Disability insurance provides a monthly income to a working person who loses a job due to illness, disability, or injury. It helps them pay recurring monthly expenses like groceries, utility bills, mortgage or rent payments, and tuition fees. It also protects the insured and their dependents from any displacement in the event of an injury or illness.

Need for disability  insurance
This type of insurance is handy for primary or sole breadwinners and people supporting minors. It is also useful for those working in tough jobs requiring manual labor or jobs with a higher risk of injury or accidents. People diagnosed with recurring or chronic illnesses can also benefit.

Types of disability insurance policies
One can choose between short-term and long-term disability insurance:

Short-term disability insurance:  Short-term plans offer protection right after an illness or injury. The waiting period is from 0 days to two weeks, and the benefit period is two years. One can receive 40% to 60% of their monthly salary. Most employers offer this type of plan as part of employee benefits.

Long-term disability insurance:  Long-term disability insurance plans protect against serious or catastrophic disabilities that may impact someone longer. These plans offer longer waiting periods but cover for up to 10 or 20 years or until a person reaches retirement age. Individuals can get up to 80% of their monthly salary.

Many plans combine short- and long-term features. One can even customize the plan and choose add-ons to increase coverage and benefits.

The government also offers different types of plans:

Social Security Disability Insurance (SSDI):  The Social Security Administration offers this plan. To be eligible, one should have a qualified medical condition, have been unable to earn an income for a year, and meet other requirements.

Supplemental Security Income (SSI):  This federal disability policy protects older adults with disabilities.

Definition of disability
The definition of disability differs from one provider to another. Some policies define it as the inability to do one’s current job well, while others define it as the inability to do any job that matches one’s education and experience. Some policies combine both, offering short-term coverage for one’s  own  occupation and later for any occupation.

Eligibility and qualifying criteria
The qualifying criteria for SSDI are more stringent than those for private plans. Even in private plans, it varies from one company to another and also from one state to another. While some disabilities automatically qualify for insurance, in some cases, one may have to have the disability continuously for 12 months.

Disease and illness coverage
Most diseases and injuries that prevent one from working are covered under disability insurance. A few examples are fractures, loss of a limb, arthritis, autism, Asperger’s syndrome, muscular dystrophy, stroke, heart disease, and multiple sclerosis.

Additional protection features
Disability insurance companies offer two protection features, which individuals should know more about before buying a plan. One may have to pay extra to get these features:

Non-cancelable coverage:  Under this feature, an insurer cannot cancel a plan if the insured fails to pay a premium. The company also cannot reduce the benefits or increase the premium.

Guaranteed renewable coverage:  The insurance company cannot cancel plans but can raise the premium under certain conditions.

Add-ons
Insurance companies also provide several add-ons, which one can buy:

Additional purchase:  This feature allows one to buy additional coverage later.

Coordination of benefits:  It applies when multiple policies cover the benefits one receives under disability. The plan sets a target amount individuals will receive from all policies, and if there is a shortfall, the plan will compensate for it.

Return of premium:  The insurance company can repay part of the premium already paid if the policyholder has  not made  any claims.

COLA:  COLA, or cost of living adjustment, adjusts the claim according to the cost of living.

Elimination or waiting period
It denotes the waiting period between a disability or injury and the time one begins to receive benefit payments. The plan will not cover any expenses during this waiting period. Short-term plans may have a zero waiting period, while long-term plans could have a waiting period between one month and one year.

Premiums
The premium depends on the type of disability insurance plan, its benefits, features, and one’s age, gender, and profession. Individuals can expect between 40% to 60% of their monthly income in short-term and up to 80% in long-term plans. Occupations are also classified as low-risk and high-risk, so one’s current job will impact the premiums and benefits.

Cost
On average, the annual cost of a disability insurance plan is about 1% to 3% of one’s annual salary.