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If you’re disabled, there’s a good chance that you’ll need to replace your income. Disability insurance can help with this, but it might not pay off if you don’t understand how it works and what factors affect whether or not the policy will pay out. In this article we’ll explain what disability policies cover—and what they don’t—as well as some other important considerations for purchasing disability insurance.
What Disability Insurance Covers
Short-term disability insurance (STD) covers you when you can’t work due to an illness or injury. Long-term disability insurance (LTDI) is similar, but it covers you if you’re unable to return to work due to a chronic illness.
Both types of disability coverage typically pay monthly benefits until your employer’s group health insurance plan kicks in, which can be anywhere from two weeks to several months depending on your company’s policy and the type of benefit offered by that policy. Some short-term policies will provide benefits for up to two years; others only offer one year at a time. If you have both STD and LTDI, some companies will pay the difference between the shorter duration of STD coverage and the longer term of LTDI coverage during any overlap between these programs.
What Is Not Covered By Disability Policies
Although disability insurance policies can provide a lot of coverage, they are not the answer to all of your financial needs. Disability policies do not cover injuries or illnesses that occur during normal daily activities—for example, you cannot rely on your disability policy to replace income if you have a heart attack while sitting at home watching TV.
Additionally, many businesses will require employees to sign agreements limiting their right to sue in favor of arbitration. If you go through a long process with an insurance company and get denied benefits, this could be enough reason for them to terminate you—and then they won’t pay out on any claims anyway!
Lastly and most importantly: if someone dies due to another person’s negligence (such as an employee’s), then there will be no money paid out by the insurance company unless there are specific riders attached which specifically mention such things as death caused by negligence (or other situations).
Coordination Of Benefits
Coordination of benefits is a provision that allows your disability policy to pay you a percentage of your income if you are receiving payments from other insurance policies. Coordination of benefits often works in conjunction with short-term disability policies, which provide income replacement for workers who have been out on sick leave for less than three months.
If you are receiving weekly payments from both short-term and long-term disability insurance companies, the person who pays for the highest amount will be responsible for paying the rest. If one company pays more than another, then it’s up to them whether they’ll pay out what was originally agreed upon or not; however, if both companies agree on an amount based on how much each one contributes toward your monthly benefit payment, then this amount will be guaranteed by all parties involved (i.e., both insurers).
Cost Of Living Adjustment
Your disability insurance premiums are likely to increase each year, but there are two types of COLAs:
- The cost of living adjustment (COLA) is a percentage increase in benefits. It’s usually paid annually and may be higher if you’re disabled for a longer period of time.
- The inflation rider increases your benefit payments based on inflation rates as determined by the Consumer Price Index (CPI). This rider is often included with group plans, but not always.
Your Disability Policy May Not Cover All Your Expenses, So Check The Fine Print
It’s important to make sure that your disability insurance will actually cover the expenses you expect. It may not be a substitute for savings, or even life insurance.
If a claim is approved, how long will it take for your benefits to kick in?
How much do you have to pay out-of-pocket before the policy starts paying out? Is there an annual maximum payout limit? These are all questions you should ask when reviewing your policy.
If you are considering disability insurance, make sure you understand what it covers and what happens if something unexpected happens. You might need to purchase additional coverage to protect yourself and your family.