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In the event of an accident, injury or illness that leaves you unable to work, disability insurance will pay you a percentage of your income. But not all disability insurance is the same. In fact, almost all compensate for different percentages of your earnings (usually between 50 and 70 percent), as well as different elimination and benefit periods. Elimination periods refer to the amount of time that must be waited before your benefits become effective. Benefit periods refer to the length of time that benefits are paid, which depends on your disability and the policy you have.
Most plans have a start date between 30 and 120 days after the onset of disability. Coverage is generally focused on illness or injury and your plan cannot be changed without your consent until you are 65 years of age.
In general, experts agree that disability insurance is a must for people, whether you have a group plan with an employer or buy an individual policy for yourself. However, with so many plans available, it’s important to understand the differences between each plan. Here is a breakdown of the main types of disability insurance:
• Disabled group plans: This is the most common type of disability insurance and is usually offered by your employer. The lowest tier of group insurance often focuses on affordability, which is beneficial, but it means benefits and payouts can vary drastically. Keep in mind that group plans generally don’t adequately cover your income, and this can be difficult at times when you can’t work. They also often have monthly or yearly caps on the dollar amount to be paid and set maximum time frames that may be shorter than you require. Group plans should always be read carefully as you can often find that what you might have expected is very different from what you actually get.
• Individual disability plans: If you don’t have a group plan or you don’t like your group plan, you can always opt for individual disability insurance. Without a group, prices often vary widely and are tailored to your individual situation and needs, which can be both a plus and a minus. In general, plans are cheaper if you’re young, healthy and have a low-risk job compared to older people with poor health or a high-risk disability job. However, by looking at your individual options, you may find a plan that suits your needs, desires, and budget better than a group plan. The research could lead to a better policy and position for yourself.
• Creditor Disability Insurance: Disability insurance is now commonly associated with debt such as auto loans, leases, mortgages, and lines of credit. With creditor disability insurance, your financial institution buys a group policy and you become part of the policy when you borrow from that institution. These policies make loan payments on your behalf instead of sending the money directly to you.
While group plans are generally cheaper, individual plans offer better coverage and can be tailored to your specific needs, including better terms and conditions compared to a group plan. Remember that awards and terms are locked until you reach the age of 65 unless changes are made with your express consent. Individual plans are an excellent option for self-employed and professionals as they can have their own ‘professional’ definition of disability. This means that an insurance company cannot force you to work in another job based on your experience and education, which is important for many working professionals. Professionals should exercise caution when considering association disability plans, as the terms and rates for these group policies can, and often do, change at any time.
If you need disability insurance, be sure to research any policies you have or are currently under.
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