One of your most important assets is your ability to earn a living. So, if illness or injury kept you from working, the lost wages could be financially devastating. For families who can't afford to miss a few months' wages or live on one income, getting some form of disability insurance makes a lot of sense. Disability insurance helps by paying out a percentage of your income while you are unable to work.
There are two forms of disability insurance to help replace some of your income should you become disabled and unable to work for a stated period of time.
- Short-Term Disability—If you were to miss six months or less of work, short-term disability would cover a portion of your lost salary. It typically begins after sick leave is exhausted. The length of coverage and payment percentage vary.
- Long-Term Disability—Typically, replaces 50-70% of salary. The policies vary in definition of disability and in the length of payout. For example, some policies will only cover five or 10 years, while others until age 65.
Before you decide on disability insurance, you'll need to consider a couple of important policy options:
- Residual Benefits—In the event you start a new job but with less pay, this option provides the benefits difference between the old and new salaries
- Cost of Living Adjustment—Allows the policy's value to increase with inflation