Personal Disability Insurance is an insurance which a person takes when a serious illness or disability strikes and prevents him / her from earning his /her livelihood. If a person has become disabled, the insurance company pays monthly disability cheque to him to offset the losses occurred due to the lack of salary or income.
Benefits of Disability Insurance
- a) Disability insurance ensures steady fixed monthly income for you in case of any disability or illness.
- b) Disability insurance lessens your worries about financial difficulties after the loss of income caused due to the serious illness or disability.
- c)You can make your future safe and secure in case of disability or serious illness by paying monthly, quarterly or annual premium according to your budget.
Types of Disability Insurance
a)Own-occupation Disability insurance: In this type, insurance companies are bound to pay you the monthly cheques if you are unable to perform your occupation. They are liable to pay you even if you are engaged in some other occupation in some other capacity.
b)Income replacement Insurance: Herein, you can claim the monthly disability from your insurance company if you are not able to work in your occupation and any other occupation too. Contrary to own –occupation disability insurance, this type would penalize a person if he is found to be engaged in some other activity while claiming his cheques.
c)Gainful Occupation Insurance: This is the most risky type of insurance plan as the insurance company will decide whether you are eligible to get the monthly disability cheques or not.
d)Employer- paid disability insurance: Most of the big companies the world over provide up to 60 percent of the salary to their employees every month, especially if they become disabled due to an accident at their workplace. The employers hire insurance company which gives the monthly cheques to the affected employees. However Income from the employer-paid disability insurance is taxable while your income would not be taxed if you pay premiums for the insurance.
Types of Disability policies
Disability policies are of two types: Non-cancellable and guaranteed renewable.
In case of non- cancellable policy, the insurance company can only cancel your policy if you have defaulted in your payment of premium. You can renew the policy every year and the premium and benefits would remain the same. In guaranteed renewable, the insurance company cannot cancel the policy but can increase the premium amount though the benefits would remain the same.
There are many key points that should be looked into before you finalize the type of insurance cover and the insurance company. Here are some of them:
- a)Definition of Disability: Every insurance company has a different definition for disability. Some companies define it as an inability to perform your job while others define it as an inability to perform any job. Though own-occupation policies are much better than income replacement policies, you will have to shell out more premiums in such policies.
- b)Benefit period: Benefit period is the period till the time you will get monthly disability cheques. You should select the benefit period very carefully depending on your financial circumstances and sources of income.
- c)You should select policies which replaces at least your 60 percent of the income. Though it would be more expensive, it would be worth it as it would mean a respectable steady monthly income in case of disability.
- d) You should purchase policies which keeps inflation and changing living standards in mind while giving the monthly benefits to the victims.
- e) Though policies that cover only accidents are cheaper, you should purchase policies which not only cover accidents but also serious illnesses as it would benefit you in long run.
- f) Non-cancellable policies are better than the guaranteed renewable policies as your premium and benefits will remain the same throughout the term period even if you renew it every year. In guaranteed renewable policies, insurance companies can increase the premium though the benefits remain the same.
- g) Before selecting any insurance company, you should check its credentials, financial stability and financial ratings to ensure that the company will keep your money safely and give it to you in case of any disability.
So, get your disability insurance done and remove all your worries about your future in case any disability or serious illness takes its toll on your income.
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