What type of disability insurance is right for me?

In the event of an accident, injury or illness that prevents you from working, disability insurance pays you a percentage of your income. But not all disability insurance policies are the same. In fact, almost all will offset different percentages of your income (usually between 50-70%), as well as different waiting periods and benefit periods. Waiting periods refer to the length of time you wait before your benefits start. Benefit periods refer to how long benefits will be payable, which depends on your disability and the policy you are purchasing.

Most plans have a start date ranging from 30 days to 120 days after a disability occurs. Coverage generally focuses on illness or injury, and your plan cannot change without your permission until you turn 65.

In general, experts agree that disability insurance is a must-have for people, whether you’re on a group plan with an employer or taking out an individual policy for yourself. But with so many plans available, it’s important to understand the differences between each. Here is a breakdown of the main types of disability insurance available:

• Group disability plans: This is the most common type of disability insurance plan and is usually offered by your employer. The lowest tier of group coverage is often focused on affordability, which is beneficial, but it means benefits and payments can vary widely. Keep in mind that group plans generally won’t cover your income levels significantly, and it can be difficult when you can’t work. They also often have monthly or annual caps on the dollar amount that will be paid and set maximum time limits which may be shorter than what you need. Group plans should always be read carefully, as you can often find that what you thought you were getting is very different from what you are actually getting.

• Individual Disability Plans: If you don’t have a group plan or don’t like your group plan, you can always opt for an individual disability insurance policy. Without a group, prices are often very different and will be tailored to your unique situation and needs, which can be both a plus and a minus. In general, plans are cheaper if you’re young, healthy, and working in a low-risk job than if you’re older, in poor health, or working in a job considered high risk for disability. Still, looking at your individual options means you might find a plan that better suits your needs, wants, and budget than a group plan. Doing the research could result in a better policy and a better position for yourself.

• Creditor disability insurance: Disability insurance is now commonly tied to debts, such as car loans, leases, mortgages and lines of credit. With creditor disability insurance, your financial institution takes out a group policy and you become a member of the policy when you take out a loan from this institution. These policies make loan repayments on your behalf rather than sending the money directly to you.

Although group plans are cheaper in general, individual plans offer better coverage and can be tailored to your specific needs, including better terms and conditions compared to a group plan. Remember that premiums, terms and conditions are locked in until you reach age 65, unless changes are made with your express permission. Individual plans are a great option for the self-employed, as well as professionals and managers, since they can have a “own occupation” definition of disability. This means that an insurance company cannot force you to practice another profession because of your experience and training, an important characteristic for many professionals. Professionals should be wary of association disability insurance plans because the terms, conditions and rates of these group policies can and often do change at any time.

If you need disability insurance, be sure to do your research on any policy you have or currently have.

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