Disability is defined as any mental or physical illness or injury which prevents you from performing your regular or customary work.
Disability (income) insurance insures the beneficiary's earned income against the risk that disability will make working and earning impossible. It includes paid sick leave and disability benefits.
Individual Disability Insurance
Individual disability income insurance pays you benefits if you can't work because you're sick or injured. Some individual policies pay partial benefits if you can only work part-time due to sickness or injury. Individual policies specify how much you will be paid, how soon after you are disabled benefits will begin, and when benefits will end.
If you purchase an individual disability income insurance policy for yourself, and pay premiums with after-tax dollars, the benefits you receive are generally tax free.
Employer-Provided Disability Insurance
Many employers offer disability income insurance as part of their employee benefits program. If your employer pays the premium, you will pay tax on any disability benefits you receive. If you have employer-provided disability insurance, you may want to supplement it with an individual policy.
When talking about disability insurance there are two types of duration:
- Short Term
This type of coverage provides coverage for disabilities of up to two years, but most policies pay up to six months on average.
- Long Term
This type of coverage protects for a longer time period, often until age 65 or for life.
Certain exclusions may apply to disability policies that are worth identifying:
- Two-year maximum benefit period for mental or nervous disorders,
- One-year maximum benefit period for alcohol or drug abuse related claims,
- Exclusion for payment of disability claims if injury or disability occurred during the commitment of a crime,
- Exclusion for disability claims resulting from an act of war.
