Disability income insurance provides you with income should you become sick or injured and unable to work. It helps protect against family financial catastrophe by giving you an income to meet daily expenses.
Disability income insurance comes in two major forms.
A variety of employer-paid and government sponsored programs, generally cost-free to the recipient, covering certain categories of workers.
Private policies (paid for by individuals) that protect income when there are no applicable employer or government programs or when those programs do not adequately meet income needs.
As with all insurance, disability income insurance operates on the principle that many people pool small sums of money to benefit those who need help. The beneficiaries are people who need adequate income should they become disabled.
How do you find out if you have enough protection? Where do you start?
First, find out exactly what benefits your employer offers in the event of a disabling illness or injury. Most employers allow some short-term sick leave, which may last from a few days to as much as six months, depending both on employer policy and on duration of employment. In some states (for example, Hawaii, New Jersey, New York, and Rhode Island), state law requires most employers to provide disability benefits for up to 26 weeks. In California, most employers must provide coverage for up to 52 weeks.
No laws require employers to offer long-term disability (LTD) insurance but it is estimated that almost half of mid-size to large employers provide long-term benefits for at least five years. Typical group long-term disability benefits replace about 60 percent of salary, start when short-term benefits are exhausted, and continue anywhere from five years to life. Often, group long-term insurance is fully paid for by employers without contributions by employees. (That's why employer-paid disability income benefits are subject to income tax.)
Check with your employer's benefits office to see if you are covered and, if so, what is available to you. Find out how long you must wait before benefits begin and how long payments will continue during your disability. Find out, too, whether your employer's plan takes other disability coverage (such as government programs) into account when calculating your long-term disability pay. Ask for a booklet describing the disability coverage your company offers.
Most salaried workers in the United States participate in the federal government's Social Security program. Social Security is best known for its retirement benefits. But the Social Security Administration (SSA) also administers disability benefits. In March of 1999, 4.2 billion dollars in Social Security disability payments were sent to 7.2 million Americans.
Your salary and the number of years you have been covered under Social Security determine how much you can receive. In March of 1999, the average monthly payment for a disabled worker was $733.
Here are some important points to remember:
Eligibility is based on being unable to perform any gainful employment, not just the job you were performing at the time the disability began.
Eligibility is based on being unable to perform any gainful employment, not just the job you were performing at the time the disability began. You are eligible for benefits after you have been disabled for 5 months and if the disability is expected to last 12 months or to result in death. Claim processing may take up to 3 months, so file as soon as possible.
Social Security payments may be reduced by disability entitlements under other government programs. Why? Because total combined payments under Social Security, workers' compensation, civil service, and military programs generally cannot exceed 80 percent of average pre disability earnings. A government pension also may reduce Social Security disability payments.
After 24 months of benefits, recipients qualify for Medicare. If you want the medical insurance portion of Medicare, in addition to hospital coverage, you must enroll and pay a monthly premium.
Social Security disability payments are subject to federal income tax if your "combined income" adjusted gross income plus any nontaxable interest income and half of your Social Security benefits exceeds certain limits. If you file an individual tax return, you may have to pay income tax on 50 percent of your Social Security disability payments if your combined income is between $25,000 and $34,000. If your combined income is greater than $34,000, then 85 percent of your benefit payments are subject to income tax. If you file a joint tax return, and your combined income is between $32,000 and $44,000, then you may have to pay taxes on 50 percent of your Social Security disability benefits. If your combined income exceeds $44,000, then 85 percent of your benefit payments are subject to income tax.
Social Security disability payments can be an important part of your income should you suffer a disabling illness or injury. Contact your local Social Security Administration office for an estimate of the disability benefits to which you would be entitled.
