No one wants to think about the possibility of being disabled, but while you are young and healthy, that’s the best time to plan for such events. Obtaining disability insurance is the least you can do to secure your future. There are many things to consider when you are shopping for the perfect plan. And if you already have coverage through your employer, you might think you are all set. Our Carroll County insurance agents are here today to offer you a few tips for deciding on the right disability coverage for your needs.
Individual vs. Group Plan
If you are employed full-time at a reputable company, you probably already have disability insurance. Many employers offer it these days as a part of the benefits package. But aside from the papers you signed when you got hired, did you even look at the scope of the coverage and the policy documents? The truth is, most group plans have very limited coverage. It’s unlikely they will cover more than 6o percent of your income, and most such policies also have a low monthly cap of maximum benefits. So, even if you are already covered through your employer, consider reviewing your policy. If the coverage is not sufficient, you can get a supplemental individual plan or completely opt out of your employer’s plan.
Tax Considerations
Another important aspect of choosing between an individual plan and a group plan is taxes. Generally, employers deduct the disability insurance premiums from their income as employee compensation expense. This means that when you will start receiving benefits, they will be subject to tax. In individual plans, on the other hand, premiums are typically not tax-deductible, so by paying taxes now you will prevent your future benefits being taxed.
Read the Fine Print
Shopping around for disability insurance entails more than simply looking for the best rate. Each policy differs from provider to provider and it pays to read the fine print. For example, a policy with a high payout may have very strict qualifications for filing a claim. Despite your type of disability being covered, you might not be eligible for the benefits due to certain conditions. Pay special attention to the definition of “total disability.” Some plans will define it as “own-occupation disability,” which means you are considered disabled if you can’t perform the job you are currently in or similar jobs. “Any-occupation disability,” on the other hand, requires you to be unable to perform any kind of job. The key difference between the two is that the “own-occupation” definition allows you to work in other jobs while receiving benefits—a great help, especially if you have a low salary.
Is it Renewable?
When you are purchasing disability insurance, you want to keep using it after the initial claim. But because the initial claim may increase the likelihood of further claims, your insurance company may be inclined to increase your rates or drop you completely. When choosing your plan, check the terms of policy renewal. There are three types of policies depending on how they are renewed:
- A non-cancelable and guaranteed renewable policy will lock in your initial rate and can’t be canceled by your insurer.
- A guaranteed renewable policy can’t be canceled by your insurer, but they reserve the right to raise your rates.
- A conditional renewable policy means it can be canceled or your rates can go up at any moment.
Of course, there will be a noticeable price difference between the three, but in the end it will be worth it.
What is Considered Income?
So your benefits will compensate 60% of your income, but what does it mean? If you heavily rely on commission, tips or bonuses, your salary might be too low to provide for your basic needs during a period of disability. Carefully read the policy agreement to make sure you and your policy’s understanding of income are the same. If commission and bonuses don’t count, you might need supplemental coverage or a new individual plan that will account for these sources.
Disability insurance can be confusing, which is why it helps to have an experienced insurance agent you can sit down with to go through all of your options. Freedom Insurance Agency is just a phone call away to answer your questions—give us a ring or contact us online!
