Disability Insurance: Understanding the Ins and Outs of the Contract
When it comes to disability insurance, shop (and then purchase) with extreme care. One of our editors here at Start a Business FAQ opened his own small business many years ago and the first thing he did was to buy a disability policy. He thought this a smart move and paid faithfully every quarter for 35 years with a comforting knowledge that if he became ill or disabled, he would have income to carry him through. Fortunately, he never had to use it. As he reached 66, the policy was terminated because of his age. Just for the fun of it--and because he knew considerably more about buying insurance at that point--he read over his policy again...this time carefully. On this reading he realized that it was so full of holes, it looked more like Swiss cheese than a disability policy.
The take-away here is that if you will start a business, probably one of the first things you should shop for is a disability policy; one of the last things you should settle for is a policy that you do not fully understand. You need a policy that is iron-clad and will deliver what you need it to deliver, when you need it to deliver.
On this website we mention again and again that we want you to deal with an independent insurance agent who is experienced with the business you are in. Another reason we like that independent agent is because he or she is a small independent business person, just like you. When you are shopping for a disability policy, you can ask them what disability they carry and why. Chances are, if you are working with a smart and savvy agent, he or she will have purchased one of the best policies for themselves because they too need a policy to deliver what it promises to deliver.
Individual and Group Disability Policies
If you are currently employed at another company, you may be part of a group disability policy. If you are self-employed or about to start a business of your own, you will need to select an individual policy. In addition to the items discussed above in this article, you need to consider all of your other sources of income, before you determine how much disability you need. There is also public disability policies available that you will want to take into account.
These are as follows:
Short-term vs. Long-term Disability
What is short-term disability insurance? Short-term disability is like sick leave and many companies offer such a program. What is long-term disability insurance? Long-term disability kicks in when the short-term benefit ends. Many individual disability policies will cover you from anywhere from two years to five years up to retirement age. Long term disability insurance quotes can vary greatly depending on various factors within the policy
Shopping for a Policy
When shopping for a disability policy, here are a couple of areas to focus on:
Residual benefits. Some policies will pay partial benefits if you return to work but are not capable of keeping a full schedule.
Do You Live in a 'Free-Look' State?
A lot of insurance agents just want to sell you a disability policy. You need to take responsibility for what you buy. Chances are that you live in a free look state whereby even after you buy a disability policy, you have 10 days to look it over and to return it and get all of your money back if you decide against it. Check with your state insurance department on the rules and regulations regarding the purchase of a policy.
Another point, how are benefits levels calculated? Here are a couple of scenarios: an entrepreneur pays himself $100,000 a year and can prove it either with a W-2 Form or a 1099 Form. If that individual has a disability policy in which he will be paid 60% of his salary up to $100,000, it is easy to calculate how much the insurance will pay him. What if that entrepreneur suffers a financial setback like many did in 2008-2009 and cut back his salary to $20,000 a year or nothing, yet he is there plugging away every day. What is he entitled to under the disability plan? 60% of $20,000 or 60% of nothing? Look at this closely.
Remember, disability plans are an important purchase because it furnishes you with income when you need it most and the last thing you want to do is tussle with an insurance company when you are ill and unable to work.
Disability Insurance Resources
One of the best resources for you to learn more about both long-term and short-term plans are to go to the websites of prominent insurance companies, which have a wealth of materials to help you select the plan that is right for you. Naturally, this material is slanted toward the particular insurance company products but you can still learn a lot. Here are a couple of Google searches you can do to return a wealth of valuable information: AFFAC disability insurance, disability insurance providers, Allstate disability insurance, Mutual of Omaha disability insurance, AARP disability insurance, Hartford long-term disability insurance, Metlife New Jersey disability insurances, Guardian disability.