Homeowners insurance covers where you live. Car insurance protects what you run. Health insurance protects your well-being. But what protects your ability to work and earn an income? After all, it allows you to pay for all of the above.
To protect yourself from the risk of losing your paycheck due to injury or illness, there is disability insurance. But do you have any idea about what is disability insurance? In this article, we cover what you need to know about this important, yet often overlooked insurance for your income.
Definition of Disability Insurance
Disability insurance is a type of coverage that replaces a portion of your monthly income if an injury or illness prevents you from working. It provides financial security for you and your loved ones who can rely on your most valuable asset – your ability to earn paychecks. You can use the disability insurance benefits you get from your policy, from monthly bills and out-of-pocket medical expenses to child care and groceries. You can also hear disability insurance as disability income insurance or income protection insurance.
Read our another post about this topic: What is Disability Insurance?
How does disability insurance work?
Disability income insurance is an agreement between the insurance company and the policyholder. In return for the monthly payment you make, the insurance company agrees to pay you the amount of the monthly benefit if you suffer a disability that affects your ability to work.
Disability insurance is designed to replace a percentage of your lost income by not losing your salary. Having disability insurance means being able to meet your financial obligations like paying bills, covering household expenses, providing for your family – when you are unable to work.
A disability insurance policy will spell in these processes:
How much will you pay in premiums?: Like any other type of insurance, you need to pay this monthly to keep your coverage in force.
How the policy defines disability?: Some policies will provide monthly benefits if an injury prevents you from working in your normal job, but allows you to do other types of work that will still reduce your income. Even if you earn less money, other policies will not work if you can work in another type of profession.
How many benefits will you get?: In most cases, the number of your benefits will be a percentage of your income. Policies usually provide 60 to 80 percent of what you earned before your disability.
How long will your benefits last?: The benefit period can be a certain number of months or years, or up to a certain age.
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