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Disability Insurance - Do You Need It?

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For many people who become disabled, it is a shock to find that employer provided disability insurance may cover far less than expected. By carefully investigating what types and amounts of coverage are provided, an individual can ensure they do not experience financial pain along with their disability. There are two types of disability coverage: short-term and long-term disability. Consider your financial needs, comfort level and legal limits to determine how much of your income you should insure in case of a disability.

With disability insurance, there is not a universally accepted definition of how much time is considered “short term” and how much time is considered “long term”. One company may consider short term disability from one to sixty days and another may consider short term coverage to be active from one to ninety days. In any case, long term disability benefits start when short term benefits end. The length of long term disability benefit periods also varies from policy to policy. It is important to look closely at the benefit periods of existing policies when considering purchasing additional coverage to fill the income gap.

It’s important to know who is paying the policy premium, the employer or the employee, and what affect that has on taxes that may be applied to benefits paid out. When an employer pays the premiums for a disability policy, any benefits paid are considered taxable income for the disabled employee. In some cases both the employer and the employee may contribute premiums to disability insurance coverage.

After determining that there is a gap in coverage, you may be able to get additional disability insurance. States regulate what percentage of the total wage can be protected to discourage fraud and promote return to work. If the employer provides 50% benefit level and the state mandates a maximum coverage of 85% the individual can purchase an additional 35% coverage to cover the gap.

Related topics: Workers Compensation Insurance, Group Health Insurance , Long Term Care Insurance

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