Why You Need Short- and Long-term Disability Coverage

Nobody plans on becoming disabled and missing work, but it can happen. An illness or an accident could cause you to be unable to work for months, or even years.

While you health insurance will cover their medical expenses, it won’t cover the cost of living while you recover.

Only 30% of American workers in private industry currently have access to employer-sponsored long-term disability insurance coverage, according to the U.S. Bureau of Labor Statistics.

That means most workers – and their families – do not have adequate protection against one of the most significant financial risks that they face.

That’s why you need your own short-term and long-term disability insurance.

These policies provide income replacement to enable individuals who can’t work to pay the bills, including mortgages and college expenses, and to maintain their standard of living.

Disability insurance replaces a percentage of pre-disability income if an employee is unable to work due to illness or injury.

There are various policies to choose from, including short-term disability coverage, long-term disability coverage, or integrated short- and long-term coverage.

Disability policies have two different protection features that are important to understand:

Non-cancelable– This means the policy cannot be canceled by the insurance company, except for non-payment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.

Guaranteed renewable– This gives you the right to renew the policy with the same benefits and not have the policy canceled by the company. However, the insurer has the right to increase the premiums.

Policy Options

In addition to the traditional disability policies, there are several options you can choose from:

  • Additional purchase options. The insurer gives you the right to buy additional insurance at a later time.
  • Coordination of benefits. The amount of benefits you receive from the insurance company is dependent on other benefits you may receive because of your disability.The policy specifies a target amount you will receive from all the policies combined, so this policy will make up the difference not paid by other policies.
  • Cost of living adjustment (COLA). The COLA increases disability benefits over time based on the increased cost of living measured by the Consumer Price Index. You will pay a higher premium if you select the COLA.
  • Residual or partial disability rider. This provision allows you to return to work part-time, collect part of their salary and receive a partial disability payment if you are still partially disabled.
  • Return of premium. This provision requires the insurer to refund part of the premium if no claims are made for a specific period of time declared in the policy.
  • Waiver of premium provision. This clause means that you do not have to pay premiums on the policy after you are disabled for 90 days.

If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.


Why You Should Consider Disability Insurance

What would happen if you were permanently injured or became too ill to work?

You might qualify for disability payments from Social Security, but would you be able to survive on the average payout of $1,171 per month? Maybe you have some savings, but would it be adequate to cover your living expenses until you’re old enough to collect retirement benefits?

If you answered “no” to either of these questions, you should consider buying disability insurance.

Disabilities are surprisingly common: One in three women and one in four men will have a disability that keeps them out of work for 90 days or more at some point during their working lifetime, according to The Life and Health Insurance Foundation for Education.

Disability insurance basically protects your income, which is especially important during your peak earning years between 40 and 55 years of age. Not only do most people earn their highest salary during this time, they actively use it to pay down debt and save for retirement.

As most insurers won’t offer disability policies to individuals over the age of 59, now is likely your best time to buy one that will carry you through to full retirement age.

As with health and life insurance, the older you are, the more expensive disability insurance becomes. If you have health problems, it may even become difficult to secure – if at all. You may still be able to purchase a policy, but it may include exclusions for health issues such as back problems or ailments related to high blood pressure for which you’ve regularly sought treatment.

Before you pursue an individual disability insurance policy, check with your employer about group policies. If the company you work for offers one, you may be able to obtain coverage without submitting to a medical examination. This can make the process easier and save you money.

If your employer does not offer supplemental disability insurance, we can work with you to find an insurance company that offers guaranteed renewable policies with fixed costs and terms.

In general, experts recommend a disability insurance policy that will replace 60 to 70% of your salary.


Two types of coverage

Short-term disability insurance. A short-term policy typically is designed to replace 80% or more of your gross income for a short duration of time, like 60 to 180 days.

Long-term disability insurance. These policies typically kick in after you’ve been out of work for an extended period of time, such as 180 days.

Long-term policies typically cover only about 60% of your salary. The coverage can last for years and even through the rest of your life, depending on the design of the policy.


How it works

The car accident

Bob suffered extensive injuries in a car accident and was unable to return to work for three years.

Typically, after six months, long-term disability insurance would begin to replace a portion of his income. Once he returns to work, the disability coverage will end.

Long term disability

Elizabeth was diagnosed with Parkinson’s disease, and as she deteriorated she was unable to work. Her insurance will continue to pay a portion of her salary for a set amount of time, typically until age 65 or through the end of her life, depending on the policy.

If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.

Long-Term Disability Claims on the Rise

The Long-Term Disability Claims Review by the CDA (Council for Disability Awareness) analyzes new claims made during the current year in addition to any ongoing or preexisting claims that were approved during prior years. In 2012, there were more than 660,000 disabled people who received long-term disability coverage from companies approved by the CDA. This was a decrease of about two percent from the figures in 2011. Between 2008 and 2011, the number of long-term disability claims consistently decreased.

Researchers found that the total claim payments actually grew somewhat. Long-term disability insurance payments from the CDA companies increased to $9.4 billion, and 2012 was the fifth year in a row of claims cost growth. The increase in 2012 reflected the largest amount of claims in the report’s history. Researchers also found that less than five percent of the CDA companies handling claims reported work-related claims in all years between 2008 and 2012.

The number of claimants who were eligible for SSDI dropped slightly. About 70 percent of the individuals who received long-term disability insurance from group plans approved by the CDA in 2012 were eligible for SSDI. In 2012, there were nearly 155,000 new claimants approved for disability insurance, which showed a decrease of almost three percent from 2011. Between 2010 and 2011, the number of new claims approved increased by more than three percent. During 2012, the new long-term claims that were approved resulted in about $1.4 billion in payments.

Of the new claims that were approved in 2012, more than 40 percent were for people who were under the age of 50. More than 55 percent of the payments went to people who were over the age of 50. For those who fell in this age group, the majority of claims filed were by people who were over the age of 60. Researchers said that with this age group’s claims increasing the total significantly, it shows that there is a working aging population. Meanwhile, they also said that the number of people filing claims in their 40s has been decreasing steadily.

Causes Of Long-Term Disability Claims
Researchers examined why people filed these claims. About 30 percent of the new claims in 2012 resulted from musculoskeletal issues or connective tissue disorders. These topped the list once again for being the most common causes of claims. The number of disability claims resulting from childbirth or pregnancy grew by nearly 25 percent in 2012, which was followed by a smaller increase in 2011. These issues accounted for more than 12 percent of the disability claims in 2012, which was up from less than 10 percent in 2011.

Another cause contributing to significant increases in 2012 was cancer. It was the second leading cause of claims that year as well as the fourth leading cause for ongoing claims. Between 2011 and 2012, claims related to mental disorders decreased, and the same was true for disorders of the sensory organs and nervous system. To learn more about claims and long-term disability insurance options, call ACBI at 203-259-7580 or visit our website.

How to Protect Your Income Against Disability


For most working Americans under about 50, their most valuable asset isn’t a house or a retirement plan. It’s the ability to continue working and earning a living. In fact, the younger you are, the more critical it is to protect this vital engine of wealth.

That’s what disability insurance is for.

In a nutshell, disability insurance replaces your income in the event you should become sick or injured and unable to earn a living.

Many Americans get disability insurance as an employee benefit. The employer pays the premiums, and deducts the premiums against earnings as an employee benefit expense. Other Americans get disability insurance on their own, by going through an agent.

Disability policies are generally designed to replace about 60 percent of a workers’ income. The idea: To give the worker enough of a cushion to keep paying the mortgage or rent and basic living expenses, while still giving the worker an incentive to recover quickly and get back on the job.

Benefits kick in after an ‘exclusion’ period, which can be anywhere from two weeks to a year. Some employers offer both short-term and long-term disability insurance plans, to ensure that workers and their families are not devastated even by the exclusion period. However, the longer the exclusionary period, the lower the premiums, all else being equal.

Definitions Matter

With life insurance, it’s usually not hard to determine whether a benefit is payable: Either there is a death certificate or there isn’t one. True missing persons cases are rare. Disability insurance policies, however, must operate in shades of gray, and judgment calls are routine. The precise language of the contract itself – and particularly the contractual definition of disability and when benefits will be payable – is paramount.

Own Occupation vs. Any Occupation

An own occupation policy pays a benefit if the disability prevents the insured from returning to work in his or her own occupation previous to the onset of the illness or injury that caused the disability. If a surgeon can’t be a surgeon anymore, the policy is generally payable. An any occupation policy, on the other hand, pays a benefit only if the insured cannot work in any occupation to which the individual is suited by virtue of education and experience. If the surgeon cannot continue to work as a surgeon, for example, but can make a perfectly good college professor or medical school teacher, then the policy would not pay a benefit.

Own occupation policies are more expensive, though, than any occupation policies, all things being equal. However, it is common for a policy to have a hybrid definition – beginning as an “own occ” policy, as it is referred to in the industry, and switching to any occ after a couple of years. Most insurance professionals recommend an own occupation policy to those who can afford it, though those with employer-paid plans may not have a choice in the matter.

Taxation of Disability Insurance

The way disability insurance is taxed depends mostly on who paid the premiums.

Premiums are not tax deductible to an individual. But if the individual paid the premiums, then disability insurance cash benefits are not generally taxable.

If the premiums were paid by the employer, however, benefits are taxable as income to the recipient.

Available Riders

Depending on your age, budget and overall situation, you might want to consider one or more of the following available riders, or endorsements. These are optional features, generally available for additional premium.

Cost of Living Benefit. This optional rider pegs benefits to the inflation rate. So your final benefits will increase as the cost of living increases.

Future increase benefits. Guarantees the right to buy additional disability insurance in the future, even if you are deemed uninsurable at that time. The new coverage you buy when you exercise your option under this rider is priced at your age at the time of purchase. For example, you may get the right to buy additional coverage upon getting married, having a child, or achieving specific ages. The contract will usually limit your future increase guarantee to half of the original coverage.

Waiver of Premium. If you do become disabled, the waiver of premium rider allows you to skip paying premiums on the policy. This is important, because if you do go on claim for a total disability, your income is already reduced by about 60 percent, in most cases. Continuing to pay a disability premium is going to be that much tougher if you have to keep it going while on claim, and while you may have additional medical expenses out of pocket at the same time.

Lifetime Extension. This rider guarantees that benefits will continue beyond age 65. Many policies cease paying benefits when the recipient is eligible for Social Security. With the lifetime extension rider, benefits for disabilities incurred before a certain age will remain payable beyond that point.

Automatic Benefits Increase. With this rider, the income benefits will increase automatically with any pay raises, regardless of the insured’s medical condition at the time of the promotion or pay raise.

Accidental Death and Dismemberment. This option pays a specified cash benefit if you lose one or more limbs, or if you lose your eyesight. It may also pay an additional cash benefit if you are killed in an accident, rather than by illness.

Return of Premium. This rider returns any premiums you don’t use back to you when you reach a specific age – typically age 65. If you use some benefits, the insurance company will deduct the benefits paid to you while disabled from the premium refund.

If you have questions about how to use insurance to help you protect you from the financial catastrophe a disability would cause, please contact us at 203-259-7580 or visit our website.