Disability income insurance can be described as a method of ensuring financial stability for individuals in case they have a bad accident at work or even an illness that precludes them from working for a period of time. It then becomes a primary source of income or a replacement plan – it can be used with other benefits to lead as normal a life as possible. This kind of insurance has helped many people from becoming bankrupt.
This insurance policy is usually purchased by an employer on behalf of the employees. Employers work with the insurance company to figure out what percentage of monthly income should be replaced per employee – their prior salaries are taken into account. Short term policies replace 50%-100%. Long term policies are usually designed to replace 60% of a person’s income.
There is a mandatory waiting period that an employee has to fulfill before a claim can be filed – it begins on the last day worked and last day on the policy. For example, if the waiting period is 60 days, benefits are handed out on the 61st day after the last day at work.
Benefits received by disabled employees are usually tax exempt for the premium amount paid by the employee and taxable for the part paid by the employer. Federal, State and FICA taxes are usually deductible.
This insurance cannot be transferred to another job – it cannot be converted to Individual policies either.
Benefits can be combined with worker’s compensation, social security benefits and other disability coverage. Other sources that usually cannot be used to supplement benefits are:
A financial planner can help clients in figuring out the rules of group insurance plans, whether a person is eligible, what extent of coverage is available, the length of time, whether benefits are taxable and how to submit claims.
This type of insurance is an important part of a benefits package for most employees – not many employers are offering it. An important aspect to note that quite a few of the provisions that work for individual disability plans like definition, provisions in benefits and length of time apply to group plans as well. The only difference is that the requirements to underwrite policies are far fewer and costs are lower as well.