Guest Post by Jack Wolstenholm Disability insurance and critical illness insurance have quite a bit in common. Both offer protection and peace of mind for life’s most vulnerable moments. Both provide benefits you can use to meet your financial obligations. Both are at their most affordable when you are young and healthy. Both can be obtained individually or as a part of a group. Both are purchases you hope you never need to actually use. However, they are far from interchangeable. To better understand the key similarities and differences between disability insurance and critical illness insurance, let’s take a closer look at how each one works, what they cover, how much they cost, and who needs what. How do they work? Disability insurance replaces a percentage of your income each month if you experience a disabling injury or illness that prevents you from working. Coverage is either long-term or short-term, and can be obtained individually through a private insurance company or as part of a group. Employers often offer group disability coverage as a benefit at little to no cost to employees who elect to participate in the plan. Critical illness insurance pays out a one-time lump-sum benefit if you experience a covered condition. Critical illness insurance can also be obtained individually or as a part of a group plan, and when employers offer it, they typically pick up the premium costs. Critical illness coverage is sometimes made available in the form of a benefit rider on life and disability insurance policies. This optional benefit comes at an additional cost when added to another policy. Disability insurance and critical insurance differ in the amount of benefits they will provide, as well as when and how those benefits are paid out. But it’s important to note that both types of policies allow you to use the benefits you receive however you want. Buy groceries, cover medical bills not covered by health insurance, make mortgage payments, replace lost income — these benefits are truly intended for whatever you need when times get tough. What do they cover? Disability insurance covers injuries and illnesses that limit your ability to perform the essential duties of your job occupation. What is and isn’t covered varies by carrier depending on the policy’s definition of disability. The two most common definitions of disability are any-occupation and own-occupation. Any-occupation is strict and specific. Under this definition of disability, you are ineligible for benefits if you can work any other job. This is true even if the jobs you are able to perform with a disability pay much less than what you earned prior to becoming disabled. To receive benefits, you must be deemed unable to work in any capacity. Own-occupation is broad and generous. A policy with an own occupation definition of disability protects your ability to work in your given profession. You will be covered if a disability prevents or limits you from working the job you had when you became disabled. Even if you’re able to work in another capacity, you will still be eligible for benefits. You may also be eligible if your disability limits the amount of hours you can work or the tasks you can perform. With this in mind, long-term disability insurance is most commonly used for serious disabling events that prevent you from working for longer than three months (even permanently), like stroke, musculoskeletal disorders, cancer, cardiovascular issues, and pregnancies with health complications. Short-term disability insurance is most commonly used for temporary disabling events that last less than three months and allow for a full recovery. Think minor injuries like fractures, sprains, and strains, and maternity leave for healthy pregnancies. On the other hand, critical illness insurance is more straightforward. It typically covers first-time diagnoses of serious conditions like cancer, heart attack, stroke, coma, paralysis, kidney failure, organ transplant, bypass surgery, and Alzheimer’s disease. However, it’s important to note that the complete list of qualifying conditions a critical illness policy will cover varies from carrier to carrier. Always check with the insurance company you are applying for coverage with to make sure you understand what its policy does and doesn’t cover. How much do they cost? Both disability insurance and critical illness are most affordable for the young and healthy. Cost increases as you age because the risk of becoming sick or hurt and filing a claim for benefits increases, too. The cost of disability insurance depends on a variety of personal factors and policy choices. Personal factors include gender, age, location, health history, job occupation, and income. Policy choices include the benefit period and amount, elimination period, and any optional riders you add to your policy. That said, the average cost of disability insurance is typically between 1 percent and 4 percent of your annual income. Another way to think about this is you can expect to pay between 2 percent and 6 percent of your policy’s monthly benefit amount in premium. As a result, some will pay $10 or $20 a month; others $100 a month or even more. It all depends on your situation. Like disability insurance, the cost of critical illness insurance can vary widely, and is determined by your personal background and policy choices. It takes all of the aforementioned factors into account except elimination period (since critical illness insurance policies do not have one), and your job occupation and income. Who needs what? In a country where one in four people will experience a disability in their working years and two-thirds of bankruptcies stem from medical issues, the value for both disability insurance and critical illness insurance is clear. But how do you know which types of coverage you actually need? Generally speaking: Disability insurance is a smart choice for healthy, employed individuals who rely on their source of income to meet their everyday financial obligations in life. This is especially true for those who have families that rely on their source of income, too. Critical illness insurance is a smart choice for those who have a health insurance plan with a high deductible they couldn’t afford to pay, concerns about their family health history, and/or insufficient emergency fund savings. Of course, there is no one-size-fits-all solution. To find your best-case coverage scenario, it’s important to do your own research, consult a reputable licensed agent, and shop around to compare rates. That way, you can lock in reliable coverage at a cost you can afford. Jack Wolstenholm is the head of content at Breeze, a digital-first-insurance company offers simple, affordable disability and critical illness insurance online.
Guest Post by Jack Wolstenholm Health. Life. Home. Auto. When it comes to your insurance needs, these types of coverage are probably the first that come to mind. And rightfully so. Together, they help protect how you and your loved ones live life. However, none of these policies will protect your greatest asset — the ability to work and earn a living. After all, it’s your income that empowers you to buy a home and a car, put food on the table, and pay the bills (including all of those monthly insurance premiums). This gap in coverage is one that far too many people experience, oftentimes because they don’t fully understand what their options are. So, what is the best way to protect your income? That’s exactly what disability insurance, the focus of this simple, straightforward guide, is designed to do. Understanding how disability insurance policies work Disability insurance is insurance for your paycheck. If you experience a covered disabling event, your insurance company will pay you a monthly benefit to replace a portion of the income you lose from not being able to work. That’s why it often helps to think of disability insurance as income protection. Every disability insurance policy includes the following components: The premium amount is how much you pay to the insurance company for coverage, depending on a number of personal factors and policy choices. Typically, premiums are paid on a monthly basis. The benefit amount is how much your disability insurance policy will pay you in benefits if you experience a covered disability. The higher your benefit amount is, the more you will pay in premiums. The benefit period is how long benefits from a disability policy will last if you experience a covered disability event. The longer your benefit period is, the more you will pay in premiums. The elimination period (or waiting period) is how long you must wait after a disability occurs before benefits kick in. The shorter your elimination period is, the more you will pay in premiums. The definition of disability states what is and what isn’t a covered disability based on how it impacts your ability to work. The more comprehensive your policy’s definition of disability is, the more you will pay in premiums. As you can see, the policy choices you make impact the cost of disability insurance greatly. But how much you pay for coverage also depends on a number of personal factors, including your age, gender, health history, and job occupation. That’s why it’s smart to put a policy in place when you are young, healthy, and employed. The different types of disability insurance, explained Insurance can quickly get confusing and, unfortunately, disability insurance is no exception. Let’s take a closer look at the main types of disability insurance coverage you should understand. Individual disability insurance vs. group disability insurance Individual disability insurance is personal coverage you can purchase on your own through a private insurance company. When you buy an individual disability policy, you are responsible for making payments on-time to keep your coverage in-force. Your individual policy is portable, which means it will stick with you as you change employers throughout your career. Group disability insurance is coverage that can be purchased by an employer, association, or organization on behalf of a number of individuals. When you join a group disability insurance plan through work (the most common scenario), your employer will typically pick up most, if not all, of the cost. While affordable group coverage is an employee benefit you cannot afford to pass up, it doesn’t mean rule out the need for individual coverage. For one, participation in a group plan is contingent upon membership. This means if you leave your employer, you lose your coverage. (Technically, your employer can cancel the plan without your consent at any time, too.) Furthermore, group disability plans use your base salary to determine your benefit amount. This excludes any commissions and bonuses you earn, and any benefits you receive will be taxed. Group disability insurance plans also place a cap on benefits at a certain dollar amount, raising concerns for high-income earners. With individual disability insurance, you can secure a higher benefit amount that better reflects your total net income. Better yet, any benefits you receive will not be taxed since the premiums are paid with after-tax dollars. Long-term disability insurance vs. short-term disability insurance Every individual and group disability insurance plan offers coverage that is either long-term or short-term in nature. As its name suggests, long-term disability insurance covers serious injuries and illnesses that last several months, years, or even permanently. Benefit periods may last one, two, five, or 10 years; or until age 65 or 67. Elimination periods may last 30, 60, 90, 180, or 365 days. On the other hand, short-term disability insurance covers temporary conditions that most people are generally able to quickly recover from and return to work. Benefits may kick in after an elimination period of seven, 14, or 30 days, and last for a period of three, six, or 12 months. While short-term coverage may be cheaper than long-term coverage upfront, that’s because it pales in comparison to the protection that long-term coverage provides. The right long-term disability insurance policy will replace a greater portion of your income for a wider range of disabilities and, of course, for a longer period of time. Do I truly need disability insurance coverage? No one wants to add another monthly expense to their budget — especially if it’s something you may never even need to use. While this logic works for many things, like extra TV streaming subscriptions and neglected gym memberships, it doesn’t for disability insurance. Here’s why: The chances of becoming disabled are higher than you may think. According to the Social Security Administration, approximately 25 percent of American workers will experience a disabling event at some point in their careers that prevents them from working for at least one year. If that seems high, it’s probably because what constitutes a disability is often misunderstood as well. Sudden accidents happen, but they only account for a small percentage of disabling events. The Council for Disability Awareness reports that over 90 percent of claims for long-term disability insurance benefits result from serious conditions that develop over time. These include medical illnesses, such as cancer and heart disease, and musculoskeletal disorders, such as arthritis and back pain. Knowing this, ask yourself: How long could you last without a paycheck? If you’re not all that confident in your answer, just know you’re not alone. As the global COVID-19 pandemic began its tear across the United States in March, GOBankingsRates conducted a survey that discovered nearly 50 percent of Americans didn’t have enough emergency savings to last longer than three weeks. It’s always smart to be proactive with your finances, but especially in uncertain times like these. Set aside some time today to evaluate your disability insurance needs and protect your greatest asset — your income. Top Disability Insurance Companies See BestCompany.com's top-ranked companies, including Breeze, and learn more by reading customer reviews. View Top Companies Jack Wolstenholm is the head of content for Breeze, a disability insurance platform that offers personalized quotes and policy recommendations online.