Disability Income Insurance
What is disability income insurance?
We all are exposed to risks each day, some obvious and others not so. One financial risk that everyone is exposed to is the risk that a stream of income will end or be interrupted. If the primary ‘bread winner’ of the household should unexpectedly become injured or sick, and thus, is unable to work, how will that stream of income be replaced? Disability income insurance (also known as DI) is designed to mitigate that financial risk by providing a monthly source of funds to replace a portion of lost income if the insured should become disabled.
How does disability income insurance work?
As with all types of insurance, an insurer will pool the funds by a large group of people to pay a benefit to those in the group who suffer a covered loss. A DI insurance company collects the premiums for each policy and after subtracting out administrative and management costs, invests the remaining funds into a portfolio in order to have sufficient funds to pay out the benefits for those expected to make claims. Thus, an individual (the insured) transfers the risk to the insurance company (the insurer) that an income stream will cease through their illness or injury.
What types of DI policies are there?
There are a variety of characteristics of a DI policy. First, is based on how long the policy will pay benefits. A short-term disability (ST) policy typically pays benefits starting from one week after the illness or injury commences up to 3 or 6 months into the disability. It is designed only for a short period of time until the employed can recover or to bridge over until the waiting period for a long-term disability (LT) policy takes effect. A long-term policy typically does not begin paying the benefits until after the waiting period has been satisfied (typically 3 or 6 months) after the disability begins. A long-term policy generally will pay benefits for a number of years, or until the insured is eligible to receive Social Security disability benefits.
Many employers offer their workforce a group DI plan. Premiums and qualification requirements vary by the plan offered. In most cases, the employer will pay a portion of the premium. Several insurance companies offer individual disability insurance, for those who are self-employed or work for organizations that do not offer a group plan. DI premiums will be higher for policies that provide more monthly benefits, offer benefits for a longer period of time, or start benefits soon after the disability commences.
Does the VA offer benefits to military veterans?
The U.S. Department of Veterans Affairs (VA) offers disability compensation to veterans with disabilities that have resulted from disease or injury incurred or aggravated during their active duty service. Compensation may also be available for post-service disabilities that are related to the veteran’s circumstances during military service.
To find out more about disability insurance or to speak with a counselor about a veteran’s disability claim, call one AAFMAA’s Member Advisors at (877) 398-2263 for a free consultation and quote.
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John Sledgianowski is an AAFMAA Benefits Advisor.