Social Security, Workers Compensation, and Why They’re Not Enough for Disability Coverage.

Most people don’t think to buy disability coverage. They’ll insure their homes, cars, expensive belongings, and even their lives before they’ll insure their ability to work. But for those who do contract a debilitating illness or injury, disability insurance can make the difference between poverty and financial preservation.

One reason many don’t buy disability coverage is that there’s a misconception out there that it isn’t necessary—that there are other means of coverage for those who become disabled. Let’s take a look at some of those possible means of coverage—and why they are often not enough.

The insured’s assets and savings. Most people don’t have enough savings to cover their medical and life expenses—and those of their dependents—for a period of months, let alone years. And those who do have significant assets often have those assets tied up in specific items that would need to be sold. If the victim has an art collection, a car collection, or other high-priced luxury goods, it could take a long time to find a buyer. A disabled person could sell his house, but he would need the means to live somewhere else if he did. Selling a business is an option, but it leaves the disabled person without a means to earn a living once recovered.

Group disability plans. Some workplaces provide group disability coverage to their employees. However, these plans typically only cover a year or later, and only replace a percentage of the disabled person’s lost income. There are usually benefit caps that work against higher-paid employees as well. In addition, these programs often only provide coverage if the insured continues to work at the company. If the disability leaves the person unable to work, the disability benefits cease.

Workers’ Compensation insurance. This type of insurance only kicks in if the disabled person was injured on the job. It doesn’t apply to anyone who injured themselves outside of work or contracted a disease that is not related to the workplace. For people who are eligible for coverage, benefits in most states are usually fairly low—usually not more than $500 per week.

Social Security. Social Security does provide disability benefits. However, these aren’t easy to qualify for. The insured has to both be “disability insured” and “fully insured” to get them. “Fully insured” means the insured has paid into the Social Security system for at least ten years, and “disability insured” means they have paid taxes toward Social Security at least five out of those ten years before filing a claim for disability coverage. In addition, the beneficiary must be younger than 65 years of age, and the disability must be predicted to last for a year or more—or end in death. Finally, the disability must be categorized as a “total disability,” meaning that it prevents the insured from working in any capacity that would be available to a person of the insured’s education and experience. For insureds that manage to comply with these strict requirements, payments can take about a year to kick in.

State-provided disability benefits. Some states, such as California, provide benefits to cover non-job-related disabilities. The payment amounts vary according to state, but usually, they pay approximately 50%-60% of the disabled person’s former wages for a very limited period of time, usually about six to twelve months.

Accidental Death and Dismemberment coverage. This type of coverage is often part of individual and group life insurance policies. This coverage pays the face amount of the policy—known as the “principle sum”—in case of the insured’s accidental death. It also pays that amount for insureds who lose the use of both arms, both legs, or both eyes in an accident; this payment is often referred to as a “capital sum.”

Long-Term Care insurance. Most people are just as unlikely to have LTC insurance as they are to have disability insurance. However, if the insured does have this type of coverage, they are much better covered than they are under any of the previous options. Long-term care insurance covers chronic diseases and disabilities over the long term, including both medical care and social services.

For people who become disabled, savings or coverage from other sources can be very tenuous and unreliable. Disability income insurance is the only product that is designed specifically for people in this situation, who are faced with prolonged disabilities. Insurance agents who can clearly explain the gaps in coverage should be able to help prospects make sure they are fully covered in case of an accident or illness that leaves them unable to work.

Want to learn more about disability insurance, in California and nationwide? Check out our continuing education course on Advanced Thinking on Disability Income Insurance.

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