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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, 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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