How Much Lost Income Will The Average Disability Insurance Policy Make Up For?

How much lost income will the average disability insurance policy make up for? This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company....

This question was posed to Mark Webb, Executive Vice President, Governmental Relations, of Employers Direct Insurance Company. "In order to assess what you may need in terms of benefits from a short or long term disability insurance policy," Webb advises, "you need to do two things. First, you need to have a good handle on what your finances are. How much money do you need to make in order to be certain the bills are going to get paid? Do not expect a disability insurance policy to pay that amount. Instead, view it as one possible income stream if you are struck by a serious injury or illness. That brings us to the second point. Before you have an injury or illness that may cause you to be off work for a significant period of time, make sure you understand just how prepared you are, or more likely, are not."

"If an injury is work related," Webb explains, "you will be covered by workers' compensation. Workers' compensation disability benefits are generally temporary disability, which is income replacement during the period of time that you are recovering from an injury, and permanent disability, which is compensation for your diminished ability to earn a living after your medical condition has reached maximum improvement. Both temporary and permanent disability can be partial or total. If your disability is partial, temporary disability payments are designed to supplement what you are able to earn while in the healing stages to mitigate against the loss of income earned during that period of time. The maximum temporary disability benefit is two-thirds of your pre-injury earnings up to maximum wage and benefit amounts set by law. In other words, even with workers' compensation you do not automatically get two-thirds of your pre-injury wage. Workers' compensation benefits are not subject to income tax."

"Social Security Disability Income (SSDI) benefits are more restrictive. In order to obtain SSDI benefits, you must be totally disabled. Benefits payable under Social Security are determined by your income and the amount of time you have been paying into the Social Security system. For more information on the specific benefits you would receive, you need to look at the annual benefit summary that you receive from the Social Security Administration or look at their website. The payments you receive may be offset by other government benefits, such as workers' compensation state disability income, or disability retirement."

"Private disability income insurance will also pay a percentage of your pre-injury wages up to a certain level," Webb points out. "Most private plans will pay between 50% and 80% of your wages. The amount that the insurer will pay is also usually subject to a maximum benefit. The maximum amount of wages varies, but can be as much as $6,000. In other words, if the maximum wage for benefit purposes is $6,000 per month and the plan pays 50% of your wages, the maximum monthly benefit is $3,000."

"If your employer provides short or long term disability benefits then the amount that you receive is determined by your employer. If the employer is paying the premium for that insurance, the benefits are subject to income tax. If you purchase short or long term disability insurance, however, the payments to you are not subject to taxation. Privately purchased long term disability insurance benefits can be tailored to what your condition may require in case of a disabling injury or illness. The premium you pay will be affected by the waiting period before benefits are paid and the amount of income you seek to replace. The shorter the waiting period and higher the benefits, the more costly the policy will be."

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