Insurance Insights
January 6-12, 2014
By Jay Bradford
Most of us don’t like to think about the impact becoming disabled can have on our ability to earn a living and remain financially independent. Understanding the role of disability insurance at the various life stages is critically important to one’s total financial security. For insurance purposes, disability is typically defined as the inability to work due to an illness or injury, although I should stress that the definition varies among different insurance companies and policies.
Short-term disability insurance replaces a portion of the policyholder’s salary for a short-period, typically from three to six months following a disability. The specific percentage of replaced income varies with different policies. Long-term disability insurance coverage typically begins after the policyholder is disabled and unable to work for at least six months. The coverage period can extend for a specific number of years or until the policyholder retires or turns 65, depending on the policy selected and the type of disability. Though policies can be costly, being disabled for a long period of time can be financially devastating. According to research by the U.S. Department of Education and the National Institute on Disability and Rehabilitation, the most common causes of long-term disability are heart disease, back injuries and cancer, followed by anxiety and depression.
Some considerations for consumers based on their likely needs in different life stages are outlined below.
Young singles – A 20 year-old worker has a 30 percent chance of becoming disabled before reaching retirement age. Young people who suddenly can not work due to an accident or sickness still will be responsible for paying their bills.
Young families – A family relying on both spouses’ incomes should consider purchasing long-term disability insurance for both. At this life stage, families typically have many expenses, including a mortgage and child care.
Established families – In addition to their regular expenses, established families are likely trying to put away a portion of their income to pay for their children’s college tuition, as well as save for retirement. Becoming disabled for a lengthy period can greatly interfere with these savings plans.
Empty nesters and seniors – If still employed, this group might want to keep their disability insurance in force until they turn 65 or retire.
Before purchasing any disability policy, consumers should check with the Arkansas Insurance Department to make sure the company offering the coverage is legitimate.
The Arkansas Insurance Department is located at 1200 West Third Street in downtown Little Rock. 1-800-852-5494. www.insurance.arkansas.gov
Jay Bradford was appointed Arkansas Insurance Commissioner by Governor Mike Beebe on January 15, 2009.
