If you should get involved in an accident, or get injured on the job, income insurance can be there to ensure that you continue to receive a monthly paycheck. Also called disability insurance, income insurance can be an excellent way to insure against the possibility of not being able to work again.
Injuries that disable or prevent working for long periods of time can destroy the finances of a family – and they can do it very quickly. One set of statistics, displayed in what is called the Commissioners Disability Table (1998), shows that about one person out of seven will suffer some kind of injury or illness that will cause them to miss more than five years of work. Depending on your income, this could amount to a loss of more than $1 million if you make more than about $45,000 now. Disability, in fact, is more likely than an early death, says the National Association of Insurance Commissioners (NAIC).
1. Types of Income Insurance
Disability insurance comes in several different forms and can provide you with a degree of flexibility. The most popular kind is that which an employer offers to their employees. While it does cover employees, it often has severe limitations as to how much they will provide, and possibly for how long. In addition, you are only covered as long as you are an employee of the company, and the benefits may be taxable.
A personal income insurance policy will give you the opportunity to get better coverage, and will also let you control some of the options. This type of policy comes in long-term or short-term disability insurance plans. Long-term disability benefits start after you have been disabled for about six months, and covers about 40 to 60 percent of your income. Short-term disability covers about 70 to 80 percent of your income, and it may be good up to one year.
2. When Income Insurance Is Applied
No one knows, of course, if and when you will ever need income insurance. How and when it gets paid to you is governed by your policy, and you will have to choose carefully which option you want.
The best kind to get is called own-occupation income insurance. This kind of coverage provides an income when you no longer are able to work at the job you were doing when the disability came. Two other types include income replacement, which means you will receive an income when you cannot work at all, and gainful occupation coverage will provide an income when you cannot perform the type of work for which you were trained or educated.
3. Calculating the Income Coverage Needed
When you determine just how much income coverage will be needed, you should calculate it carefully. There is no need to pay for amounts of income that you may be able to receive from other sources, such as from the government or various state or organizations.
Besides needing to get several online income insurance quotes online before you buy, you also want to be careful about one particular option – guaranteed renewability. It also may pay only up to a certain amount, or for a limited number of years. Policies are available that will pay coverage up until you are 65 years old, or go on Social Security.