The purpose of disability insurance is to provide policyholders with income/coverage if they are unable to work due to illness or permanent disability. Most business owners subscribe to a number of different insurance plans like health, life, theft etc. – a few carry disability insurance as well. This could be troublesome in the long run, not only for the business but for the employee as well.
Types of Disability Policies
If a business is looking at purchasing coverage for their employees as well as themselves, there are a couple of different policies to choose from. Each one is tailored for a specific purpose.
- Long Term Group Disability Package: This is geared to replace about 40-60% of the insured party’s income, up to $5000 a month. This income is taxable if the employer pays the premium, which they can deduct as a business expense on taxes.
- Long term Disability for Individuals: Individual policies are definitely more expensive to purchase than group packages. They also provide more replacement income and come with greater portability. Of course, costs for such policies drop if they are sponsored by an employer and 3 or more people buy into the plan. In this case, individuals pay the premiums with their money, after tax.
One of the questions that have to be answered is whether it makes sense to get disability coverage based on specific circumstances. Here is a look at the pros and cons of disability insurance.
Advantages of Disability Insurance
- A policy holder gets a part of his/her income in case they are disabled. This money usually goes towards payment of bills and meeting daily needs. People can avoid situations like bankruptcy and foreclosure just because they are not able to earn a living.
- This type of insurance affords protection of income even if the person dies. Disability insurance is very important – people get the opportunity to survive catastrophes like serious illness or accidents. People can deal with disabling conditions as well.
Disadvantages of Disability Insurance
- The waiting period can vary from 30 to 90 days. Most people are forced to dip into their savings to meet their needs.
- This insurance is available for a period of 12 to 24 months for short term disability and 24 – 60 months for long term disability.
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