If you're thinking about buying a disability insurance policy, you probably have a few questions. For example, you might be thinking...doesn't the government offer disability payments?
Yes, workers' compensation and Social Security are two well-known government disability programs. In addition, several states offer disability benefits to their residents.
But there's a catch.
These programs are designed to provide limited benefits with very restrictive terms. Many people who rely on these programs learn too late that they won't be paid enough money to keep up with their bills, let alone maintain their standard of living. But you can take action to protect yourself with an individual disability insurance policy.
The Drawbacks of Government-Sponsored Programs
There are several types of government-sponsored disability payment programs. Workers' comp is designed to protect people who get sick, injured, or killed while on the job. The most obvious drawback here is that you have no coverage if you get sick, injured, or killed off the job. For example, if you fall off a ladder while cleaning your house's gutters on a Saturday, workers' comp is not going to apply to you.
Social Security offers disability benefits, but it has its drawbacks, too. For starters, it doesn't offer any benefits for a partial disability. Unless you are fully disabled, you will not qualify.
Also, the government's definition of "disability" is very strict. Your disability must prevent you from earning a substantial income, it must be medically determined, and it must be expected to last at least 12 months. But what happens if you are only partially disabled? Or if your disability is expected to last 10 months? In both cases, you would not qualify for any Social Security disability benefits.
The Benefits of Private Disability Insurance
The largest benefit is being able to cover more situations than government-issued disability insurance. You'll know you're covered if you face a short-term disability, for example. It's hard to put a price on peace of mind, but that's often what you get from a private disability policy. A second benefit is the ability to tailor a policy that fits your needs. You can choose your waiting period, for example, or how long you want to receive benefits (two years, five years, up to age 65, or for the rest of your life).
Most policies also include a "waiver of premium" rider, which means that should you become disabled, you won't have to pay your insurance premium. The insurer will pay that for you and keep your policy current until your disability period is over. There's one more key benefit of private disability insurance. Because you paid for your private policy with after-tax dollars, your benefits are tax-free!