Disability Insurance: things you need to know

One of the valuable benefits offered by many large companies is coverage for the possibility you may become unable to perform your job, and the subsequent loss of income you may suffer. It is your income protection plan against disability caused by injury or illness, and being unable to perform normal day-to-day functions such as bathing, dressing or eating.

There are different coverages in three main areas: Impairment – a body function or structure problem, such as heart.  Activity – difficulty in executing a task or action, such as eating or dressing yourself. Participation – a problem in engaging in a life situation, such as being unable to work.

For some, this policy may provide a good sense of security. However, there are a number of factors you should be aware of – whether you belong to a company disability benefits policy or have organised your own insurance in that regard.

Disability Insurance Facts

Sometimes statistics are not our friend, and many people avoid thinking about the future with anything other than positive expectation. However, did you know that anybody over the age of 35 has a 50% chance of disability for 90 days or more before they turn 65? That’s a statistic you should be quite clear about before you decide to skip the disability notion.

• Disability insurance can be paid out as a lump sum, or as a monthly income benefit until retirement age, either 60 or 65, depending on your choice of coverage. You should know your policy rules and limitations, in order to avoid disappointment, should the time arise when you may need to claim.
• A lump-sum benefit is typically only paid out when you are permanently disabled, whereas income benefits can provide for both temporary and permanent disability.
• Many employees think their chance of being disabled for three months or more is only 1%. In fact, 1 in 5 believes they are more likely to win the Lottery than become disabled. In reality, approximately one out of seven people who are between the ages of 35 – 65 can expect to become disabled for five years or longer. In fact, more than 1 in 4 could experience disability lasting three months or longer before they hit retirement age.
• The most common medical conditions listed for limiting your ability to work are back disorders, followed by heart disease, mental disorders, and arthritis. Accidents, contrary to expectation, are not the main cause. So that annual visit to the doc is essential in knowing where you stand health-wise, as an employee, and with regard to the benefits, you may qualify for.
• Most people are better prepared financially in the case of death rather than disability – and yet the chances of the latter are 3 times greater. Many foreclosures on mortgages are brought about by a disability, a much greater percentage than death.
• A fair percentage of people do not carry long-term disability insurance, and may even refuse the company’s package because they think the eventuality is unlikely, and they prefer to take the premium money home. And yet there are thousands of adults who daily experience a disability that prevents them from working.
• Premiums paid or income disability cover are taxable whereas the benefit is tax-free. However, if you purchase an Individual policy, you have choices and plans that can be tax-free. Talk to a reputable financial advisor before you make decisions.
• Applying for government disability may mean that you will need to have worked for a minimum of ten years before such a pension can be granted. Keep up to date with changing regulations. The requirements are strict and only about 40% of applications might be successful.
• Because of child-birth and increased risk of heart disease, women are at the biggest risk of being out of work for more than three months.
• Most people, no matter their income, spend 60%to 70% of their cash flow. This means you will need to secure a disability income that will come close to covering this income spend – or what is absolutely essential for covering your commitments. When you look at this objectively, you will realise that one year of being disabled without an income could deplete your savings in a very short time.

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