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What is disability insurance?
- Income replacement: Disability insurance is designed to provide a portion of your income if you become unable to work due to a qualifying illness or injury.
- Safety net: It provides crucial financial protection when you can’t earn your usual income due to a disability.
Types of disability insurance
- Short-term disability:
- Covers a shorter period of disability (usually a few weeks to a few months).
- Often has a waiting period before benefits begin.
- Long-term disability:
- Covers extended periods (potentially years or up to retirement age).
- Typically has a longer waiting period.
How it works
- Choose a policy: You select a plan that fits your income level, desired coverage amount, and waiting period.
- Pay premiums: You regularly pay premiums to maintain the policy.
- Disability occurs: If you become disabled (as defined by your policy), you file a claim with the insurance company.
- Waiting period: There’s often a waiting period (typically 30-90 days) before benefits kick in.
- Benefits paid: You receive a monthly benefit (usually a percentage of your pre-disability income) for the duration specified in your policy.
What can it cover?
Disabilities can arise from:
- Illnesses: Cancer, heart problems, chronic conditions, etc.
- Accidents: Injuries that prevent you from working.
- Mental health conditions: Can be covered by some policies.
Why you might need it
- Significant risk: The chance of becoming disabled for an extended period is higher than many people realize.
- Income protection: Maintains your financial wellbeing and covers expenses like your mortgage, food, and medical bills during a disability.
- Sources: Can be purchased through an employer (group plan) or individually.
Important to Note
- Definition of disability: Policies vary on how they define disability. Some might be stricter than others.
- Exclusions: Pre-existing conditions or certain disabilities could be excluded.