How to Apply and Get One

You must have heard about disability insurance once or twice as a student and you’re asking what it is exactly? Do you need it? What are you going to get from it? And how much does disability insurance cost? Disability insurance is for everyone as it pays you income when you can’t work because of illness or injury, but you need to get the best disability insurance to get started.

According to the Council for Disability Awareness, one in every four 20-year-old people will become disabled before retirement. The reason for their disability may be related to a temporary illness or injury. Whichever is the case, they will be qualified as disabled and unable to work for a time, in which case they would still need to earn income to take care of themselves.

Although their condition may place them in the position to receive Social Security Disability payment, that alone is insufficient. Most Social Security Disability payments are for temporary disability and as such provide two-thirds of a person’s salary for up to eight weeks, depending on your state of residence.  

In this condition, whether as a student or an adult, a disability insurance benefit will come helpful. So, in this post, we would answer the question, what is disability insurance? The types of disability insurance and so many other topics. View the table of content below to view all we will cover in this article.

What is Disability Insurance?

Disability Insurance is an insurance policy that pays the insured benefits to replace income when the insured can’t work due to an illness or injury. To drive this definition home, disability insurance (DI) is a kind of income protection that pays you a portion of your monthly income if you are unable to go to work because you are ill or injured.

The level of income replacement that a DI plan offers as well as how long you receive payments from it depends on the kind of DI you take. To this effect, there are two kinds of Disability Insurance policies – the long term and the short-term DI plans.

While the long-term plans cover you for a longer time (over two and a half years), the short-term plans are policies that provide you cover only when you’re out of work for a short time. Now, the next question is what kinds of disability are eligible for disability insurance?

What qualifies as a disability?

All DI policies have their definition of disability so that you don’t just request benefits for the smallest of injuries. Generally, any injury or illness that makes you mentally or physically unable to complete your job will qualify you for a Disability Insurance plan. The same goes for any impairment that substantially limits your ability to carry out basic life activities.

Who Needs Disability Insurance?

Having answered what a Disability Insurance is and what conditions qualify you for benefits in a DI plan, you must understand who this policy is made for. Basically, employers and employers are the ones DI plans to target, but you can also get a Disability Insurance as a student as you’ll find down this article.

Both small business owners and employees need DI plans because many of these people (especially the employees) keep a small savings account that will be used up once they get disabled. And since Social Security Disability does not provide 100% of your income while you were working, you would need a DI plan to cover the gap. This is because DI provides a safety net that you need as a business owner or employee to feel secure and not worry about your day-to-day expenses while recovering.

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In most cases, your company will enlist you for a DI because there is no limit to the number of employees a company can offer Disability Insurance. But DI only covers accidents and illnesses that are not work-related. So, if you cut off your fingers at home while using the kitchen knife and won’t be able to use that hand to work, DI covers you. Where the accident is work-related, however, you would need a Worker’s Compensation.

How Does Disability Insurance Work?

This is a very important aspect of Disability Insurance you should know as a student, so you don’t pick up any kind of DI plan you’d regret later. Disability insurance are of different kinds and you can obtain them through a wide range of providers or companies for a wide range of prices. Now, the price of a DI policy depends on several factors such as the length of the elimination period, the benefit period, and policy’s strictness in defining disability.

Not all policies define disability the same way. But there are two common ways that Disability Insurance companies define Disability. One is “own occupation” and the other is “any occupation. Own Occupation policies considers you disabled if you are no longer able to perform the occupation you had before becoming disabled. On the other hand, Any Occupation policies considers you disabled if you are unable to perform any job at all as a result of being disabled.

The policy that will pay you more benefit will be the stricter policy because the condition of disability is less likely to occur. For this reason, it will also be the cheaper policy. Meanwhile, the U.S. Social Security System’s definition of disability is very strict and it is quite difficult to qualify for disability payments under the program.

However, there is a Social Security disability provision – the compassionate allowances – that can speed up this process for individuals who are very ill. You can receive this income insurance as an employee who is disabled for at least one year but the income insurance payments begin on the sixth month of disability.

Types of Disability Insurance

From the above describing how DI works, we mentioned different kinds of Disability Insurance coverage. Because this may be quite confusing for you as a student, we’ll discuss the types of Disability Insurance that people can take advantage of. Like we stated earlier in this post, the major kinds of DI plans are short-term and long-term plans. But there are several other kinds. We’ll help you understand them all in this section.

Short-term disability insurance

Like the name, short-term DIs pay benefits for a short period of time, usually from one to two years. But the amount of time that you must have been disabled before the policy starts paying your benefit could be as short as one month. This period of time before the payment in insurance terms is the “elimination” or “waiting period.”

Short-term disability policies are able to replace up to 80% of your gross income during the period that the policy pays you or the benefit period in insurance terms. Since most short-term disability policies cost the same as long-term disability policies, you can take it up if you have sufficient savings to cover your expenses for a year or two.

Meanwhile, short-term disability policies are often available as an employee benefit. Some states either require employers to offer this benefit or take up their own state-run short-term disability policies that all residents of the state can sign up for.

Long-term disability insurance

Long-term disability insurance is the more important and popular kind of DI policy. Most individual disability Insurance Companies require you to be disabled for at least two years before they start paying out. But the average length of disability is about 34 months, which is why this kind of coverage can sustain you if you become disabled for a period of years.

While some long-term disability policies will pay for up to 5 years, others will pay 10 years’ worth of benefits. Some others will keep paying you until retirement age, which is usually 65 years.  With long-term disability insurance plans, you will receive a maximum of 60% of your previous earnings every month. This income is tax-free so long as you have not deducted the cost of the premiums on your tax return or your employer paid for this coverage with pretax dollars.

Long-term disability policies are of two key types – Own Occupation coverage and Any Occupation coverage – which we had discussed earlier. Meanwhile, Own Occupation policies, which pay you benefits when you can no longer perform your previous occupation because of the disability, branches further into three kinds.

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The Types of Own-Occupation Policies

Below are the three kinds of Long-term disability Own-occupation policies:

1. True own-occupation policies – pay you if you become unable to work in your chosen occupation, even if you get another job.

2. Transitional own-occupation policies – pay you the difference between what you were earning before the disability occurred and what you’re earning now if you’re able to work a job that pays less than what you made before after becoming disabled.

3. Not Engaged Own occupation policies – only pay disability benefits until you find another job, irrespective of how much (or how little) the job pays.

The Other Types of Disability Insurance

Asides the major kinds of DI plans, here are other kinds of DI policies that may interest you:

1. Mortgage Disability Insurance – is a form of long-term disability coverage that covers your mortgage payment if you become unable to work for an extended period of time. You can get this type of coverage from your mortgage lender in most cases, even though some insurance agents and brokers sell this type of policy.

2. Supplemental Disability Insurance – pays you the difference between what you are receiving from your employer’s short or long-term disability policy and your actual monthly expenses.

3. Social Security Disability Insurance (SSDI) – is the hardest type of disability insurance to qualify for as the Social Security Administration rejects over half of all initial applications are rejected. Meanwhile, the average monthly benefit amount you can receive is just over $1,000.

4. State Disability Insurance – are State-sponsored short-term DI policies which must be paid either by the employer or employee or both. The benefit of this plan is usually available for a year at most.

5. Business Overhead Expense Disability Insurance – covers your business expenses if you are self-employed and become unable to work. The insurance company administering this kind of Disability Insurance can cover items such as employee compensation and benefits, rent, utilities, payroll taxes, and other costs of running a business.

6. Workers’ Compensation – is coverage that only applies to employees who are injured on the job. If you become disabled from an off-the-job event, you will not receive any benefit from this cover.

Worker’s Compensation vs Disability Insurance

So as not to mix Worker’s Compensation with Disability Insurance, Worker’s Compensation Insurance only pays if and when you are injured on the job or have an employment-related illness. Most states in the USA and contractors mandate employers to take it for their employees. On the other hand, Disability Insurance covers illness and injury that happens away from the job and that isn’t job-related. States in the USA don’t mandate employers to have this kind of insurance. But DI ensures that you can pay your bills when you are disabled from any non-work-related reason.

When is the Best Time to Apply for Disability Insurance?

Just like with all types of insurance, the best time to apply for Disability Insurance is when you do not need the coverage. That is why we want you to know what disability insurance is as a student. When you are healthy, you can easily pass any medical screening and underwriting requirements. This translates into low rates for your policy.

Generally, it is ideal to apply for DI before you attain the age of 65 or even 50. Once you’re 65 years old, the policy will become inactive because insurance companies will consider you eligible for retirement if you become injured or ill and require coverage due to the inability to work.

How Much Does Disability Insurance Cost?

The amount you’d pay for a DI policy is based on your age, annual income, and type of employment. Also, it is based on a risk to reward ratio. Generally, the average cost of Disability Insurance, be it short term or long term is 1 to 3 percent of your annual gross income. This means that if you earn around $100,000 a year in gross income will pay approximately $1,000 to $3,000 a year for Disability Insurance.

The above estimation assumes that you are under 45 years of age and that you work in a job with minimal risks. Otherwise, DI premiums can cost as much as 15% of your annual gross income, especially if you are over the age of 45 and in a high-risk job like construction work. But if you’re under 30 years of age and you work in a career that is mostly stationary, such as a secretary or office manager, you will pay less than 1 percent of your annual gross income.

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How Can I Get Disability Insurance?

Here are four ways in which you can get a DI coverage:

1. Sign up for employer-sponsored coverage at work. Some employers offer disability insurance to their employers, sign up for one. These employers pay some or all of the cost of premiums. Five states in the USA provide or require employers to provide short-term disability benefits. These states are California, Hawaii, New Jersey, New York, and Rhode Island.

2. Buy disability insurance through the workplace. While some employers don’t pay for disability coverage for their employees, they offer it as a voluntary benefit. This allows you to buy coverage through the employer’s insurance broker at a group rate.

3. Buy disability insurance through a professional association. Many professional groups offer members DI coverage at group rates.

4. Buy an individual disability insurance plan. You can get Disability Insurance plans as an individual from an insurance broker or directly from an insurance company. However, the major kind of individual disability policies you’ll get from insurance companies are for long-term coverage. Short-term policies are rare.

Things You Should Know When Buying your own Disability Policy

The major reason why you would want to buy a DI policy for yourself is if your employer isn’t providing you enough disability coverage or you are self-employed. Since employer-sponsored disability insurance pays only a portion of your base salary, up to a cap, it is wise to supplement the coverage. That is if your salary far exceeds the cap or you depend on bonuses or commissions.

However, insurance companies will consider other sources of disability insurance to determine how much coverage you can buy. As a rule, you can’t replace more than 75% of your income from all the coverage combined. But most people prefer to get their own policy because it will allow you:

  • Customize your DI coverage with extra features like annual cost-of-living adjustments
  • Select the insurance company with the best offerings
  • Maintain coverage when you change jobs. Employer-paid coverage ends when you leave the company. (You might be able to take the coverage if you pay the full premium for disability insurance offered through the workplace.)
  • Control your DI policy as the coverage stays intact as long as you pay for it. Employer-sponsored coverage, on the other hand, will end if the employer decides to stop providing disability benefits.
  • Collect benefits that are tax-free if you become disabled. If the employer pays for the coverage, you must pay taxes on the benefits.

Factors Affecting the Price of Your Disability Plan

Although we had earlier stated some of the factors that affect your Disability Insurance plan, it will do to give a comprehensive list here. Here are factors that determine whether you’ll pay 1 to 3 percent of your gross income towards a DI policy:

  • Your age and health: The older you are and the more health problems you have, the more you pay.
  • Your gender: Women usually pay more because they tend to file more claims.
  • Whether you smoke: You pay less if you don’t smoke
  • Your occupation: Working in a job with a high risk of injuries demands you to pay more.
  • The definition of disability: The broader the definition of disability, the higher the premium. Policies that cover you if you can’t work in your own occupation but can earn income in a lower-paying job will cost more than the ones that cover you only if you can’t work at all.
  • Length of waiting period: You can reduce the premium you pay for a DI by increasing the waiting period before benefits kick in.
  • Your income: The more income you have to protect, the more you’ll pay for coverage
  • Length of benefits: The longer the period that the policy will pay out if you become disabled, the more you’ll pay in premiums
  • Extra features: Additional features like cost-of-living adjustments to protect against inflation will increase your premium

Best Disability Insurance Companies in 2020

The best way to get Individual Disability Insurance coverage is to go through insurance companies. Here are the best Disability Insurance companies to choose if you’re asking what is the best Disability Insurance company.

1. Breeze

Breeze is an online disability insurance firm that provides affordable long-term disability coverage in just a little time. attainable and affordable. You can apply for a Disability Insurance policy online with Breeze in less than 15 minutes with no paperwork, no pain, and no pressure throughout the process. Their policies are available for people aged between 18 and 60 years, and the waiting period is between 30 days and one year.

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2. Assurity

Assurity is a popular choice Disability Insurance company that offers a couple of different choices for disability insurance. Their choices include options that can protect you for the short-term or the long-term if you were suddenly injured or disabled and unable to work. Their 120 years in business makes Assurity a trustworthy Disability Insurance company and one of the best options for self-employed applicants.

3. Guardian Life

Guardian Life’s biggest strength is the size of its workforce and facilities. They have over 2,750 agents and 58 agencies across the USA. Also, their disability insurance plans are offered by one of their subsidiaries, Berkshire Life Insurance Company of America. And Berkshire Life has four kinds of disability policies: individual plans, group plans, disability insurance for business owners, and supplemental plans.

4. Illinois Mutual

Illinois Mutual has over 1,000 independent insurance agents across the USA, and their popular Di policy is the Paycheck Power disability insurance policy. This policy can help pay for your monthly expenses if Social Security isn’t enough. And like most other plans, their policy is renewable until you turn 67, as long as you’re paying the premiums.

5. PIU (Petersen International Underwriters)

Petersen International Underwriters is not one of the big names but it has a noble history as well as an A+ rating with the Better Business Bureau (BBB). A major strength of this Disability Insurance company is its excellence in handling DI policies for high-income earners. This means that they specialize in working with clients who would lose a lot of income if they could no longer work.

How Can I get Disability Insurance While in school?

As a student, it is difficult for you to get Disability Insurance policies. The only instance where you can get Disability Insurance as a student is when you’re training to go into a medical field. This is because medical school is expensive, and you’ll have many years of student loan debt to pay off when you graduate.

So, the Association of American Medical Colleges requires all medical schools to offer disability insurance coverage to their students. Some schools also require their students to purchase coverage. But this is optional in most cases.

As a medical student, you should talk to your school’s benefits administrator to learn whether you have a Disability Insurance coverage already or whether you need to purchase one. Meanwhile, if you belong to a professional organization like the American Dental Association, you should be able to get coverage through it.

But since Disability Insurance that the medical school or professional association offers may expire once you graduate or enter residency, it is better to purchase your coverage directly from an insurance company. This way, your DI policy becomes portable.

How Does Disability Insurance for Students Work?

Disability insurance works the same way for students as it does to employers and employees. When you become disabled, the insurer pays you benefits during the benefit period or until you recover or die. There are a few differences, however.

One is in the benefit amount.  Under a disability insurance policy for employees, the benefit amount is typically about 60% of the employee’s gross income. In the case of students, insurance companies set the benefit amount at a flat rate of between $1,000 and $2,500. But your benefit amount can change depending on the stage you are in your program. Some insurers offer benefit amounts as high as $5,000 to $7,000 when you start residency.

Another difference is in the definition of disability. The definition of disability for student policies is a measure of how disabled you have to be before you become eligible to receive benefits. So, in most cases, you will have to show that you’re unable to continue attending school to be able to receive benefits.  Furthermore, to keep receiving benefits after being disabled for a certain period of time, you may also have to prove that you can’t work in any occupation for which you attended school.

In order to avoid asking how students Disability Insurance can pay your student loan debt, here are Scholarships for USA students to help you stay away from student loan debts.

Advantages and Disadvantages of Disability Insurance for Students

One major advantage of Disability Insurance for students is that you will have to pay a really low premium. This is based on the following reasons:

  • The younger you are when you purchase disability insurance, the cheaper it is.
  • Some schools and organizations offer it for free or at a reduced group rate.
  • You’re getting much lower coverage while you’re in school.
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But while disability insurance starts out low when you’re in school, it could increase in price after you graduate. The reason being that you’ll need to increase your coverage to match your income.

Another advantage is that in student disability insurance policies, students can also receive benefits long after they have left school. Some policies may even last until retirement age. Your benefits will mostly only end once you recover from your disability.

Yet another advantage of the student Disability Insurance is that you don’t need to take any medical exam before the insurance companies underwrite you a policy. However, your policy may not cover pre-existing conditions you had prior to applying for the policy.

Finally, the elimination period for student Disability Insurance is 90 days, which is way shorter than those for employees (typically 34 months for long-term DI). You can shorten the elimination periods but that will imply a shorter benefit period or a high premium.

How Can Disability Insurance Pay Student Loans?

One of the reasons why students ask what is Disability Insurance question is because they’ve heard that it can offset their student loan. Yes, student loan debt is a big part of the reason to get disability insurance, whether you’re currently a student or already working.

Not only doctors and dentists pile up student loans. Other high-income professionals like lawyers, pharmacists, and software engineers also incur huge student loan debt. So, it is important to get a Disability Insurance once you commence work to be able to offset these debts.

Although the U.S. government may allow you to discharge any of your outstanding federal student loans when you’re permanently disabled, your private student loan debt may still remain unpaid. When you purchase a student loan disability rider for your disability insurance policy, this rider will pay a monthly benefit directly to your student loan servicer when you become disabled.

FAQs

Do I need disability insurance?

Yes, you need disability insurance because as an employee, your savings may not be enough to take care of you when you have an illness or injury that is not covered by the worker’s compensation which your employer offers.

How much does disability insurance cost?

The cost of Disability Insurance depends on a number of factors including your age and the risk level of your current occupation. However, Insurance companies generally charge between 1 to 3 percent of your gross income for Disability Insurance.

What conditions qualify for disability?

Any injury or illness that makes you mentally or physically unable to complete your job qualifies you for short-term or long-term disability insurance offered by most insurance companies. However, for Social Security Disability Insurance it must be medical conditions such as cardiovascular conditions (e.g. heart failure or coronary artery disease), senses and speech issues (e.g. vision and hearing loss), respiratory illnesses (e.g. COPD or asthma), and neurological disorders (e.g. MS, cerebral palsy, Parkinson’s disease, or epilepsy).

How can I get disability insurance?

You can get a Disability Insurance by signing up for employer-sponsored coverage at work, buying one through the workplace, buying one through a professional association, or buying an individual Disability Insurance plan.

How much disability insurance do I need?

You need both long term and short-term disability insurance. Target at least 70% of your current salary for a long-term disability insurance benefit and also budget for short-term disability, unless you have enough emergency savings to last for up to six months.

Conclusion

Disability insurance assists you with the income you can use to take care of yourself when you are ill or injured and can’t go to work for some time. Students ask what is Disability Insurance questions because they want to know if they can also take it.

Yes, you can take Disability Insurance as a student but you must be training to become a medical practitioner. But another benefit of disability insurance to students is that in the long run, when they are finally eligible to take one, it can help cover their accrued student loans.

It is very important to understand what Disability Insurance is so as not to confuse it with Workers’ Compensation. This understanding will help you see the reasons why you need a DI coverage.

References

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