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Where To Get Disability Insurance
Disability insurance comes in many forms--individual policies, group policies sponsored by employers or associations, and government-sponsored programs such as Social Security and workers' compensation. Here are some of the benefits and drawbacks of each type.
Individual disability insurance
Individual disability insurance policies cover one individual--you. You usually buy them from an insurance company (click here for a quote), and you will have to meet certain standards relating to age, income, occupation, health, and hobbies before you are issued a policy. You will pay more for individual coverage than for a group policy, but you often get more for your money. Individual disability insurance provides a policy tailored to meet your needs, more liberal benefits than group coverage. Additionally, you can lower the cost of an individual policy by reducing the benefit period, increasing the elimination period, or getting rid of features that you originally wanted.
Group disability insurance through an employer
Group disability insurance purchased through your employer is a low-cost alternative to individual coverage. Here's how it works: Your employer buys a group disability policy and then offers coverage to you and other eligible members of the group during certain periods of the year (called open enrollment periods). If you enroll at this time, you'll qualify for coverage even if you are older or have health problems.
On the other hand, because they're designed to meet the needs of a group, employer-sponsored group plans are not very flexible. Many plans offer only short-term coverage, and you may have to meet a stringent definition of disability to receive benefits. In addition, the phrase "you can't take it with you" normally applies to group disability coverage. When you leave your job or otherwise terminate your relationship with a group, you can't take your disability policy with you, and you usually can't convert it to an individual disability policy. This means that you may be left without disability coverage when you need it.
Group disability policies through an organization or association
Trade or professional associations sometimes offer disability coverage to their members. Although called group disability because it is group-sponsored, association policies are issued to individual group members who must prove insurability. However, insurability standards for association members are sometimes relaxed, and you may qualify more easily for association disability insurance than for an individual policy. If you buy an association sponsored policy, it will initially cost less than an individual policy. However, after a certain term (five or ten years), your premium may rise and eventually exceed the premium for an individual policy. In addition, the policy will be canceled if you leave the group or if the association withdraws its endorsement, leaving you without disability protection.
Government-sponsored disability insurance
Workers' compensation and Social Security are two well-known government disability insurance programs. In addition, five states (California, Hawaii, New Jersey, New York, and Rhode Island) have mandatory disability insurance programs that provide disability benefits to residents. If you are a civil service worker, a military service member, or other federal, state, or local government employee, there are many disability programs set up to benefit you.
Unlike other types of disability coverage, you don't have to pay a premium for government-sponsored disability coverage. It is not, however, a free benefit; you finance some types of government disability insurance by paying taxes. However, you don't have to pay the relatively high premiums you pay for private disability insurance, and you get basic protection against disability.
In general, however, government disability insurance programs are designed to provide limited benefits under restrictive terms, and you should not rely on them as your main source of income if you are disabled (although many people mistakenly do).
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