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Understanding Short Term and Long-Term Disability Insurance

Disability insurance comes from a variety of different sources. For instance, a person could purchase insurance of this kind through an employer, as a supplemental policy to the conventional health insurance provided; buy a policy from a third-party insurance company or, it could be in the form of government disability. The primary difference is that disability insurance through an employer is something the employee pays for whereas buying from a third party would be the financial responsibility of the individual and insurance through the government would be something the individual would have to qualify for to receive benefits.

Disability insurance also comes in both short and long-term options. While the concept is the same, the way the coverage works is different. For instance, with short-term disability, the individual would have coverage but only for an extended amount of time. To get this type of disability insurance, whether from the employer, third party insurance company, or through the government, the individual would have suffered some type of injury or illness, preventing him or her from performing job responsibilities.

With short-term disability insurance, the person would have coverage up to five years or until turning age 65 at which time Social Security would kick in. While short-term disability has its benefits by providing income to the insured when needed, there are times when long-term disability makes more sense. With short-term disability insurance, it is often offered by an employer but if the person has to purchase it on his or her own, benefits would be considered tax-free.

Because disability insurance policies are all unique, a person needing or wanting coverage should always perform research, looking for the best policy but at the most affordable price. Again, individuals can go with disability insurance offered through an employer or purchase a policy from an independent broker but when the person has no insurance, government assistance is available.

For buying disability insurance, it would be important for the person to work with a respected company, one that has the right experience. Typically, a person needing either short or long-term disability insurance should consider two to four different companies, sitting down with representatives from each to ask questions and learn about the type of coverage available, along with associated prices.

While short and long-term disability insurance is not overly complicated, many people struggle in understanding the true meaning of being “disabled”. Although some variances exist regarding definition, the following are guidelines used by insurance companies and the government in defining “disability”.

  • Complete Disability Specific to long-term disability, complete disability would be confirmed if the individual were unable to perform any of his or her job requirements. In addition to this applying to the person’s current job, for the decision for complete disability insurance to be provided, the company would look at other industries in which the person had training or experience, or could receiving training. Obviously, a person working as a carpenter that was to lose the ability to work with the hands would likely qualify for long-term disability insurance but the insurance company or government agency would first determine if this person could sell insurance on the phone with the right training.
  • Partial Disability For this type of disability insurance, the individual would not be able to work his or her normal job. However, if the employer feels the person could work a different type of job the claim might be disputed. For this reason, disability insurance experts recommend that employees choose what is known as the “residual benefit” option when selecting long-term disability, which means if the person were placed in a different job but one that paid less than the normal job, the disability insurance policy would make up the difference.
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