Nine things you should know in case you get sick or injured
Shielding loved ones from financial stress is about doing your best to try and ensure that they’re provided for, even when something unexpected happens to you. Lost income, treatment costs, and recovery time can have a severe impact on your finances – with many expenses falling outside standard medical insurance or government disability payments. On the bright side, forms of coverage are available that can help provide protection for you and your family.
There are a few things you should look into while figuring out the types of insurance you might need:
First, determine the real cost of protecting your income
Income is a critical component of your standard of living, and that tends to apply to everyone – single or married, family or not. Add up mortgage payments, student loans, credit card debt, and other costs of living, as well as putting money aside for college fees and retirement, and chances are good that you need most of your paycheck each month. Disability income insurance should be thought of not just as protection for missing wages during a temporary illness or injury, but over a whole lifetime. Moreover, those with higher incomes often live with corresponding financial obligations. Most disability income insurance won’t cover all of your lost income if you’re unable to work due to illness or injury, but it can provide enough income to cover a large portion of those expenses. In general, individual disability income insurance costs between 2% and 3% of your salary. That means, if you earn $100,000, you’ll spend around $2,000 to $3,000 a year for coverage.
Understand the terms of coverage
There are short-term disabilities and long-term disabilities, and benefits plans can vary widely when it comes to the terms. Knowing what you have is important if you want to guard against gaps.
Short-term disability is generally defined by employers as falling within 70-180 days, and is often employer-paid. Long-term disability will kick in after that short-term coverage has expired. Long-term disability coverage might extend for years or even until you’re 65, depending upon the employer’s offering.
An employer’s plan might make you apply for the US government disability first, so that you receive that benefit before any income that their own insurance plan would provide. This could leave you with an income gap. When you’re not sure, talk to your human resources contact at work, or speak to a qualified insurance expert.
See if government protection is enough for you
US government disability is essentially public insurance, meant for individuals who suffer disabilities that prevent them from working for at least one year. If you qualify for Social Security, you will likely qualify for disability payments, depending on the degree of proven incapacity. The income provided through US government disability protection currently averages about $12,600 a year1, and receiving the benefits could take months, so be sure you can live on this amount of money if you choose to rely on this option alone.
Evaluate the coverage you already have
Become familiar early on with the details of existing insurance coverage, starting with those offered through your job and evaluate if it is sufficient. About a third of US employees currently have access to disability income insurance through work.2 Take time to research the terms of this coverage if you have it, as terms can vary. One critical detail about disability income insurance (which would include the benefits you get through your employer) is that it has to be obtained prior to the accident or illness. If you’re self-employed, you may also be able to benefit from plans that you can obtain from memberships in professional organizations.
Consider strengthening your protection, even if you’re in a plan
If you’re offered disability income insurance through your employer, you may want to take maximum advantage of it. Base coverage is often partially paid for by employers, and in some cases, may be fully funded by them. As a rule, you would be reimbursed around 40%–60% of your salary. Basic disability income insurance often has income caps and will not include bonuses, commissions, or profit sharing. Look at a supplemental disability income insurance plan, either through work or independently, to cover income that basic insurance may not.
Talk to your financial representative about a “waiver of premium” rider
To ease the financial strain resulting from a disability, some life insurance policies allow you to purchase a waiver of premium rider. This protects you in the event of an unexpected disability that makes it hard for you to pay your monthly premiums. Without it, if you couldn’t afford to pay your premiums, your coverage would be cancelled. Check with your financial representative for the specific guidelines your policy has; there may be certain requirements in terms of your age and how a disability is defined.
Look into accident, cancer, and critical illness insurance
Products are available that can help to protect your family finances when illnesses and accidents disrupt life and add unanticipated costs. These policies may be offered through your work, outside professional organizations, or from private insurance companies. The terms differ from conventional medical insurance in that payments are often made directly to you instead of to the medical providers. Deductibles, co-pays, extra tests, transportation to hospitals, and even cost of living expenses such as childcare, rent, and food are covered, and indeed, you may be able to use the payments in any way that you want.
Check your coverage options before leaving a job
Even after you’re clear about your insurance plans at work, and have taken out any optional and supplemental forms of coverage, be careful about the actions you take if you’re considering filing a claim. Most employer-offered insurance requires you to be an active employee. Some insurance may allow you full portability. It’s extremely important to know your position when it comes to extending coverage, particularly if you have filed a claim or aren’t sure when you’ll be in a full-time role again.
Even if it’s your own company, it needs protecting
Owning your business may have its advantages, but unfortunately, being boss won’t protect you from accidents or health problems. Even if your personal medical costs are covered by health plans and insurance, it’s likely your business would suffer if you had an accident or became ill for several months. Consider looking into disability income insurance for small businesses – these are products offered specifically to protect businesses. This would enable you to help meet payroll and cover your firm’s overhead until you’re well enough to be back at the helm.
With the right protection, life’s challenges can be overcome
Disability, accident, cancer, critical illness, or business insurance policies have all been designed with one goal: to prepare you and your loved ones for potential health difficulties that can arise, and the financial consequences. Many of the costs and lost income these policies cover will not be picked up by standard health plans or by basic disability.
Hopefully, you’ll never need to make a disability claim. When in doubt about your coverage, speak to a financial professional who understands insurance. You’ll feel much more secure knowing that you’ve thought about the possibilities ahead of time and created a plan that doesn’t depend upon good luck.
Find a Financial Representative
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1, 2 Kimberly Palmer, “Why You Probably Need More Disability Insurance,” U.S. News & World Report, Oct. 9, 2013