Disability Short term and Long term

Beyond the challenges of suffering pain or discomfort and undergoing treatment, disability may also mean loss of income. To replace this loss, you may be able to draw on various sources of financial compensation, such as the following:

- Social Security: For those who are severely disabled and unable to work at all

- Workers’ compensation: For work-related illness or injury

- Civil service disability: For federal and state government workers

- Automobile insurance: For disability due to an automobile accident

Check with your state insurance department to see whether your state mandates and monitors disability plans. In states that do, your employer automatically deducts premiums from your paycheck. You file claims directly with the state. If you aren’t eligible for one of these sources, you probably won’t receive compensation for lost income (other than sickleave benefits from your employer), which is where disability insurance comes in.

Short-term disability (STD)

Short-term disability insurance covers only loss from illness or disease; it excludes loss from accident or injury. Employersponsored plans may include STD insurance as part of a health insurance plan. Benefits generally pay a certain percentage of your salary for a certain number of weeks, based on your years of employment.

For short-term disability, experts advise that you not rely on disability insurance the cost of an STD policy may outweigh the benefits. In addition to any sick-leave benefits your employer pays, live on your savings or the sale of an investment for a couple of months.

Long-term disability (LTD)

Long-term disability insurance kicks in when short-term disability ends, usually after 52 weeks. Its goal is to lessen the threat of financial disaster. LTD plans pay monthly benefits from periods of one year up to a lifetime, depending on your plan when disability prevents you from returning to work. Your plan also specifies when your benefits begin, how much you will receive, and any coverage limitations. Check with your employer to see whether a group long-term disability policy is available. Some LTD plans offered through employers may be more cost-effective than in individual plans. Disability insurance replaces only a percentage of your lost wages, usually about 60 percent of your income at the time you buy the plan. This insurance doesn’t cover the cost of rehabilitation, which is a medical expense.

Deciding whether to buy disability insurance depends on your individual situation. You need to consider several factors, including the following:

- How much financial risk are you willing to assume if you’re unable to work for an extended period?

- How long can you live on your savings and investments?

- What will it take, in terms of time and effort, to rebuild your savings and investments and recoup lost interest?

- Can your spouse’s income can make up for your lost wages?

If you decide to buy a disability insurance policy, think about the following:

- How the insurer defines “disability”: One insurer may define “disability” as being unable to perform the duties of your customary occupation. Another insurer’s definition may mean that you can engage in no gainful employment at all.

- When benefits begin: Benefits may begin from one to six months or more after the start of disability. If you can afford the lost income, lower your premiums by choosing a later starting date.

- Whether the policy covers both accident and illness. Benefits may be taxable depending on who pays the premiums for the disability policy. The following parameters usually hold true, but you should consult your tax professional with any questions:

- If you pay the premiums for an individual policy, the benefits you receive aren’t subject to income tax.

- If your employer pays some or all of the premiums under a group policy, some or all of the benefits may be taxable.