Health Care and Disability

Disability claims often happen on the job, and typically can fall into short term or long term based on the severity of the injury. When you suffer from a situation that results in requiring you to leave work for an extended period of time, the most common period initially is within the first 90 days of when the injury occurs. Most companies recognize that if your disability lasts longer than three months, the disability period is considered long term and falls into that category for coverage if you are insured.

According to the US Social Security Administration, disability is something most people do not like to think about. But the chances that you will become disabled probably are greater than you realize. Studies show that a 20-year-old worker has a 3 in 10 chance of becoming disabled before reaching full retirement age. A huge amount of information about collecting disability payments based on qualifications for Social Security can be found at this website:  http://www.ssa.gov/pubs/10029.html#a0=0.

According to State Farm, But what would happen if you become disabled or ill and could not work How would you...

•Pay your bills?
•Make your monthly rent or mortgage loan payments?
•Buy your groceries?
•Make your car payments?
•Provide for your children's education?
•Save for retirement?

Most people don't realize the risk of becoming disabled, permanently or temporarily, at some point in their lives. But the reality is that at age 40, your chances of becoming disabled for 90 days or more prior to age 65 is 43%. (Source: 2004 Field Guide, National Underwriter). When evaluating the chances of disability, you should carefully consider sources of available funds:

1.) Employer coverage--How long would the business continue to pay you? How much would they pay you? When would your employer have to hire a replacement? Could the business afford to pay both?

2.) Using savings--If you saved 10% of your income each year, one year of total disability could wipe out 10 years of savings. Can you afford that?

3.) Obtaining a loan--Without an income, who will lend you money?

4.) Working Spouse or Partner--Can your spouse or partner earn enough and be a companion, parent, private nurse, and employee - all at the same time?

5.) Selling investments--Will a sale under forced conditions bring a true value? What will their value be at the time you are disabled?

6.) Collecting Social Security--You cannot collect benefits until the end of the fifth full calendar month of total disability and only if it is expected to last 12 months or more. What will you do if your disability doesn't meet those requirements? Even if it does, can you wait six months for payment?

7.) Counting on friends, family or charity--Would these sources have funds for you to use? Do you want to depend on them?

Many different disability insurance products are available to help protect you and your family against severe financial hardship that may accompany a disability. Much more options can be found at this site: http://www.statefarm.com/insurance/disability/disability.asp.

If you were to become disabled tomorrow and couldn't work for two or three months, would you have enough savings to cover your living expenses during that time? If not, you may want to consider short-term disability insurance, according to Insure.com. Plus, 1 in 7 people can expect to be disabled for five years or more before retirement. Statistics like that should make short-term disability insurance a vital piece of your overall financial plan.

What is short-term disability insurance? Short-term disability insurance pays a percentage of your salary if you become temporarily disabled, meaning that you are not able to work for a short period of time due to sickness or injury (excluding on-the-job injuries, which are covered by workers compensation insurance). A typical short-term disability insurance policy provides you with 40 to 65 percent of your pre-disability base salary, according to the Life and Health Insurance Foundation for Education. The National Association of Insurance Commissioners estimates that these benefits generally last between three and six months. Most short-term disability insurance policies have a "cap," meaning you receive a maximum benefit amount per month. Short-term disability insurance policies also have a limit on the amount of time you can receive benefits — up to two years, according to the Insurance Information Institute (III).

Short-term disability insurance, which is most often purchased as part of a group at work, can be paid by either the employer or the employee. Group short-term disability insurance policies are "guaranteed issue," meaning you do not have to take a medical exam to buy coverage, according to Insure.com. You can start receiving money from your short-term disability insurance policy with a waiting period of 0 to 14 days after becoming sick or disabled, according to the III. The actual time for coverage to kick in depends on whether you suffer an illness or injury. If you suffer an injury, your benefits will be paid immediately. If you suffer an illness, it may take longer because of the need to show that the illness is grave enough to be disabling.

For example, if you severely injure yourself by falling off a ladder at your house, your benefits would kick in immediately. However, if you suffer from a serious illness and can't go to work, your insurance may not kick in until eight days after you became ill. Your employer may have additional restrictions as to when your short-term disability insurance policy kicks in. For example, your employer may require you to use all of your sick days before you begin receiving payments from your short-term disability insurance policy. You also may receive retroactive benefits if you have a condition that worsens over time. Let's say you have a cold and you took three sick days at work. If your cold evolves into pneumonia, hospitalizing you for three weeks and preventing you from performing your job duties, you could receive disability pay retroactive to your first sick day. A huge amount of information on this topic can be found at this website: http://www.insure.com/articles/disabilityinsurance/short-term-disability.html.

According to this website: http://employeebenefits.about.com/od/ancillaryinsurance/a/STDBascis.htm, if you are an employer, you can create a policy dictating that employees use sick days before going on short term disability for an extended illness. You can also require documentation from a doctor to prove an illness or injury. Different short term disability plans dictate different terms for qualifications. The main terms are listed below:

•Employees need to work for the employer for a certain amount of time before coverage kicks in.
•Employees need to work full-time, usually 30 hours or more a week.

The following are part of what a short term disability plan benefits package may include:

•Percentage of weekly salary paid out (typically between 50% - 70% of weekly salary).
•Duration of short term disability benefits (typically between 10 to 26 weeks).
•Maximum amount of time covered under this disability program.

It’s also important to know the rules of the states where you have employees. While short term disability is not a requirement in most places, some states such as Hawaii, New Jersey, New York and Rhode Island mandate that short term disability benefits are provided for up to 26 weeks. You may also want as an employer a long term disability program in place once an employee’s short term disability ends. If an employee is still out of work due to illness or injury, a long term disability can help even further.

According to Smart Money, a typical group plan offered by an employer will replace up to 60% of your salary. Supplemental plans and individual policies will often cover up to 70% or 80%. (No plan will cover all of your salary for fear you will have little or no incentive to get back to work.) Benefits typically last for a set number of years (say five years) or until you reach retirement age. (Benefits typically stop around retirement age since once you retire, you would no longer be dependent on the income you generated by working, anyway.) If you pay the premium out-of-pocket meaning your employer doesn't cover the tab benefits are tax free.

Long term disability policies vary greatly. While some are iron-clad and pay benefits when you need them, others have more holes than a pasta strainer. Folks trying to save some money with a leaner plan may find it ultimately worthless. Typically, the cheaper plans have very strict definitions of disability, making it difficult to claim benefits over many years. Unless you're self employed, the first thing you should do is figure out if your employer provides long-term disability insurance in the first place. About half of mid- to large-sized firms offer benefits that last for at least five years, according to America's Health Insurance Plans.

As mentioned above, the typical group plan covers up to 60% of one's income. (This is offset by any other benefits you may receive from social security or worker's comp.) But the amount may actually be far less than that. That's because most group plans have a benefit cap of, say, $5,000 a month or $60,000 a year. Another surprise for many is that bonuses don't usually make it into the equation. A group plan will only insure your regular salary. Another shortcoming: Most group policies limit the amount of time it will pay benefits if you can't perform your job duties to just two years. After that, you'll need to prove you can't hold down job. Not only does this keep costs down for your employer, but the idea is that you can get new job training during those initial two years that you receive benefits

Long-term disability insurance kicks in once your short-term disability benefits run out. Unfortunately, there are no state laws that require employers to provide long-term disability, but it's estimated that half of all midsized to large firms do provide at least some insurance, according to Smart Money. If you do decide to buy an individual long-term disability plan or to supplement your employer-based insurance, be sure to find out how much short-term disability coverage you have. There's no reason to pay a premium for a long-term disability policy with a short elimination period of, say, 60 days when you have short-term coverage for six months.

If you are self-employed or not covered by your employer, it clearly makes sense to consider purchasing an individual plan. But even if you are covered at work you may want to consider supplementing what you've got: After all, you probably can't afford to live on just 60% of your salary. An individual plan will allow you to insure another 10% to 20% of your income. And in some cases, you may even be able to get individual coverage for a six-figure salary and a bonus something you'll never get with a group plan, according to Smart Money. Much more detail about disability insurance can be found at this site: http://www.smartmoney.com/plan/insurance/do-you-need-disability-insurance-17318/.

To factor how much you should consider paying for disability insurance, AARP has an online calculator to help you at this site: http://www.aarp.org/money/insurance/disability_insurance_calculator/. Here is a list of items you need to consider when calculating what amount of coverage you should purchase:

1.) Monthly net income--This calculation is done on an individual basis. Do not include your spouse's income.

2.) Current monthly living expenses--Remember to include your home or rent payments, food, clothing, gas, phone and other monthly expenses.

3.) Your monthly expenses while you are disabled--This amount is usually a little less than your original monthly expenses. The default value for this field is calculated as 70% of your current monthly expenses. You should keep in mind, however, that many expenses such as your mortgage, rent, utilities and food will most likely remain the same as before you were disabled.

4.) The number of months you expect a disability will prevent you from working--A common mistake is to underestimate the time it takes to get back to work.

5.) Your current monthly disability coverage--Make sure to include any disability coverage supplied by your employer.

6.) Length of coverage--Number of months that your current monthly coverage will last.

7.) What you expect for the average long-term or annual inflation rate--A common measure of inflation in the U.S. is the Consumer Price Index (CPI). From 1925 through 2011 the CPI has a long-term average of 3.0% annually. Over the last 31 years highest CPI recorded was 13.5% in 1980. If you are disabled for a short period of time, inflation is usually not a very important factor. However, you may need to consider the effect of inflation if you remain disabled for more than a few years.

If you are fortunate to live your entire life without suffering from a disabling event, you are fortunate as the odds can be stacked against you, especially if you work at a job that has significant stress or potential injury from the type or work you do for a living--for example warehouse, mill, or dock work, coal mining, policeman, fireman, or first responder, and many more high risk occupations. Be very careful at all times where you work, and always follow safety precautions. However, it is inevitable that many people get injured or sick and need extra financial assistance during extended leave from work. When you calculate what you need if you cannot work due to these types of situations, make sure that you protect yourself financially as much as possible. Even though you may never need it, the peace of mind from having extra coverage is worth the few dollars each month.

Until next time.