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Inside this Article
How Are
Disability Premiums Determined?
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Disability premiums
are based on your age, sex, occupation and the amount of
potential lost income you are trying to protect.
In general, the lower
the chance that your occupation puts you in harm’s way, the lower the
premium.
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The higher the chance of injury, the bigger the premium. So,
for instance, an accountant working in an office would have much lower
disability premiums than a construction worker.
How can I
insure against loss of income?
If you were disabled and unable
to work as a result of an accident or illness, what would you and your
family do for income?
Disability income insurance, which complements health
insurance, can replace lost income. Forty-three percent of all
people age 40 will have a long-term (lasting 90 days or more) disability
event by age 65.
Employer-paid
disability insurance
This is required in most states.
Most employers provide some short-term sick leave. Many larger employers
provide long-term disability coverage as well, typically with benefits
of up to 60 percent of salary lasting from five years to age 65, and in
some cases extended for life.
Social Security disability benefits
This can be paid to workers whose disability is
expected to last at least 12 months and is so severe that no gainful
employment can be performed.
Individual disability income
insurance policies
Other limited replacement income is available for
workers under some circumstances from workers compensation (if the
injury or illness is job-related), auto insurance (if disability results
from an auto accident) and the Department of Veterans Affairs.
For
most workers, even those with some employer-paid
coverage, an individual disability income policy is
the best way to ensure adequate income in the event of
disability.
When you buy a private
disability income policy, you can expect to replace
from 50% to 70% of income. Insurers won’t replace
all your income because they want you to have an
incentive to return to work.
However, when you pay
the premiums yourself, disability benefits are not
taxed. (Benefits from employer-paid policies are
subject to income tax.)
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