{"id":138591,"date":"2022-10-31T11:48:00","date_gmt":"2022-10-31T11:48:00","guid":{"rendered":"https:\/\/kiiky.com\/?p=138591"},"modified":"2022-10-31T12:19:04","modified_gmt":"2022-10-31T12:19:04","slug":"what-is-disability-insurance","status":"publish","type":"post","link":"https:\/\/kiiky.com\/what-is-disability-insurance\/","title":{"rendered":"Full Guide on Disability Insurance as a Student: How to Apply and Get One"},"content":{"rendered":"\n

You must have heard about disability insurance once or twice as a student and you\u2019re 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\u2019t work because of illness or injury, but you need to get the best disability insurance to get started.<\/p>\n\n\n\n

According to the Council for Disability Awareness, one in every four 20-year-old people will become disabled before retirement. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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\u2019s salary for up to eight weeks, depending on your state of residence.  <\/p>\n\n\n\n

In this condition, whether as a student or an adult, a disability insurance benefit will come helpful. <\/p>\n\n\n\n

So, in this post, we would answer the question, what is disability insurance? The types of disability insurance and so many other topics. <\/p>\n\n\n\n

View the table of content below to view all we will cover in this article.<\/p>\n\n\n\n\n\n

What is Disability Insurance?<\/strong><\/span><\/h2>\n\n\n\n

Disability Insurance is an insurance policy that pays the insured benefits to replace income when the insured can\u2019t work due to an illness or injury. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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 \u2013 the long term and the short-term DI plans.<\/p>\n\n\n\n

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\u2019re out of work for a short time. Now, the next question is what kinds of disability are eligible for disability insurance?<\/p>\n\n\n\n

What qualifies as a disability?<\/strong><\/span><\/h3>\n\n\n\n

All DI policies have their definition of disability so that you don\u2019t just request benefits for the smallest of injuries. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n\n

Asides getting Disability Coverage as a student, also see these Personal Finance Habits: 11Things Students must do to be rich<\/strong><\/a><\/p>\n\n\n\n\n

Who Needs Disability Insurance?<\/strong><\/span><\/h2>\n\n\n\n

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. <\/p>\n\n\n\n

Basically, employers and employers are the ones DI plans to target, but you can also get Disability Insurance as a student as you\u2019ll find in this article.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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\u2019t 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.<\/p>\n\n\n\n

How Does Disability Insurance Work?<\/strong><\/span><\/h2>\n\n\n\n

This is a very important aspect of Disability Insurance you should know as a student, so you don\u2019t pick up any kind of DI plan you\u2019d regret later. <\/p>\n\n\n\n

Disability insurance is of different kinds and you can obtain them through a wide range of providers or companies for a wide range of prices. <\/p>\n\n\n\n

Now, the price of a DI policy depends on several factors such as the length of the elimination period, the benefit period, and the policy\u2019s strictness in defining disability.<\/p>\n\n\n\n

Not all policies define disability the same way. But there are two common ways that Disability Insurance companies define Disability. <\/p>\n\n\n\n

One is “own occupation” and the other is \u201cany occupation. Own Occupation policies consider you disabled if you are no longer able to perform the occupation you had before becoming disabled. <\/p>\n\n\n\n

On the other hand, Any Occupation policies consider you disabled if you are unable to perform any job at all as a result of being disabled.<\/p>\n\n\n\n

The policy that will pay you more benefit will be the stricter policy because the condition of disability is less likely to occur. <\/p>\n\n\n\n

For this reason, it will also be the cheaper policy. Meanwhile, the U.S. Social Security System\u2019s definition of disability is very strict and it is quite difficult to qualify for disability payments under the program.<\/p>\n\n\n\n

However, there is a Social Security disability provision \u2013 the compassionate allowances \u2013 that can speed up this process for individuals who are very ill. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Types of Disability Insurance<\/strong><\/span><\/h2>\n\n\n\n

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\u2019ll discuss the types of Disability Insurance that people can take advantage of. <\/p>\n\n\n\n

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\u2019ll help you understand them all in this section.<\/p>\n\n\n\n

Short-term disability insurance<\/strong><\/span><\/h3>\n\n\n\n

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. <\/p>\n\n\n\n

This period of time before the payment in insurance terms is the \u201celimination\u201d or \u201cwaiting period.\u201d<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n\n

Are you stuck in this Covid-19 pandemic and need a loan? See this Coronavirus Student Loan Relief Programs and Assistance<\/a><\/strong><\/p>\n\n\n\n\n

Long-term disability insurance<\/strong><\/span><\/h3>\n\n\n\n

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. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

While some long-term disability policies will pay for up to 5 years, others will pay 10 years\u2019 worth of benefits. Some others will keep paying you until retirement age, which is usually 65 years.  <\/p>\n\n\n\n

With long-term disability insurance plans, you will receive a maximum of 60% of your previous earnings every month. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Long-term disability policies are of two key types \u2013 Own Occupation coverage and Any Occupation coverage \u2013 which we had discussed earlier. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

The Types of Own-Occupation Policies<\/strong><\/span><\/h4>\n\n\n\n

Below are the three kinds of Long-term disability Own-occupation policies:<\/p>\n\n\n\n

1. True own-occupation policies<\/strong> \u2013 pay you if you become unable to work in your chosen occupation, even if you get another job.<\/p>\n\n\n\n

2. Transitional own-occupation policies <\/strong>\u2013 pay you the difference between what you were earning before the disability occurred and what you\u2019re earning now if you\u2019re able to work a job that pays less than what you made before after becoming disabled.<\/p>\n\n\n\n

3. Not Engaged Own occupation policies<\/strong> \u2013 only pay disability benefits until you find another job, irrespective of how much (or how little) the job pays.<\/p>\n\n\n\n

The Other Types of Disability Insurance<\/strong><\/span><\/h3>\n\n\n\n

Asides the major kinds of DI plans, here are other kinds of DI policies that may interest you:<\/p>\n\n\n\n

1. Mortgage Disability Insurance<\/strong> \u2013 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.<\/p>\n\n\n\n

2. Supplemental Disability Insurance<\/strong> \u2013 pays you the difference between what you are receiving from your employer\u2019s short or long-term disability policy and your actual monthly expenses.<\/p>\n\n\n\n

3. Social Security Disability Insurance (SSDI)<\/strong> \u2013 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.<\/p>\n\n\n\n

4. State Disability Insurance<\/strong> \u2013 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.<\/p>\n\n\n\n

5. Business Overhead Expense Disability Insurance<\/strong> \u2013 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.<\/p>\n\n\n\n

6. Workers\u2019 Compensation <\/strong>\u2013 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.<\/p>\n\n\n\n

Worker’s Compensation vs Disability Insurance<\/strong><\/span><\/h2>\n\n\n\n

So as not to mix Worker\u2019s 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. <\/p>\n\n\n\n

On the other hand, Disability Insurance covers illness and injury that happens away from the job and that isn\u2019t job-related. <\/p>\n\n\n\n

States in the USA don\u2019t mandate employers to have this kind of insurance. But DI ensures that you can pay your bills when you are disabled for any non-work-related reason.<\/p>\n\n\n\n

When is the Best Time to Apply for Disability Insurance?<\/strong><\/span><\/h2>\n\n\n\n

Just like with all types of insurance, the best time to apply for Disability Insurance is when you do not need the coverage. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Generally, it is ideal to apply for DI before you attain the age of 65 or even 50. Once you\u2019re 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.<\/p>\n\n\n\n

How Much Does Disability Insurance Cost?<\/strong><\/span><\/h2>\n\n\n\n

The amount you\u2019d pay for a DI policy is based on your age, annual income, and type of employment. <\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

The above estimation assumes that you are under 45 years of age and that you work in a job with minimal risks. <\/p>\n\n\n\n

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. <\/p>\n\n\n\n

But if you\u2019re 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.<\/p>\n\n\n\n

How Can I Get Disability Insurance?<\/strong><\/span><\/h2>\n\n\n\n

Here are four ways in which you can get a DI coverage:<\/p>\n\n\n\n

1. Sign up for employer-sponsored coverage at work.<\/strong> 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.<\/p>\n\n\n\n

2. Buy disability insurance through the workplace<\/strong>. While some employers don\u2019t pay for disability coverage for their employees, they offer it as a voluntary benefit. This allows you to buy coverage through the employer\u2019s insurance broker at a group rate.<\/p>\n\n\n\n

3. Buy disability insurance through a professional association<\/strong>. Many professional groups offer members DI coverage at group rates.<\/p>\n\n\n\n

4. Buy an individual disability insurance plan<\/strong>. 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\u2019ll get from insurance companies are for long-term coverage. Short-term policies are rare.<\/p>\n\n\n\n

Things You Should Know When Buying your own Disability Policy<\/strong><\/span><\/h2>\n\n\n\n

The major reason why you would want to buy a DI policy for yourself is if your employer isn\u2019t 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.<\/p>\n\n\n\n

However, insurance companies will consider other sources of disability insurance to determine how much coverage you can buy. As a rule, you can\u2019t 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:<\/p>\n\n\n\n