What is disability insurance? Learn more about the different types of disability insurance available, the benefits they offer, and why this coverage can be so important.
Only 14% of Americans own some form of disability coverage. 51 million Americans lack sufficient disability insurance coverage.¹
If you think about it, your ability to generate income is probably your most valuable financial asset—and one that’s extremely important to your family’s lifestyle and future. After all, a consistent income helps pay your day-to-day expenses and is also an essential way to build wealth over time. Disability insurance is a proven way to help protect your most valuable asset by replacing a portion of the income you could lose if a disabling sickness or injury prevents you from working.
If you become disabled due to a sickness or injury while this coverage is in place, you may be eligible to receive monthly benefit payments that you can use to help financially support your loved ones and maintain your quality of life. When you qualify for disability benefits, payments will begin at the end of your Elimination Period (an amount of time specified in your policy), and these benefits may be tax free depending on whether premiums were paid with before or after-tax dollars. Unlike health insurance payments, disability benefits are paid directly to you, so you are free to use your benefits however you like: to pay the mortgage, to cover childcare—or to simply keep up with your day-to-day expenses. As long as you continue to qualify for disability benefits, payments will continue until you are able to return to work, or until the end of your benefit period, whichever comes first.
When it comes to disability insurance, there are two basic types of coverage: coverage that offers short-term benefits and coverage that offers long-term benefits. In many cases you will have two available options to secure this coverage: through group insurance offered by an employer or trade association, or by purchasing an individual policy directly from an insurance company. For your convenience, we’ve provided brief descriptions of each type of coverage and the ways you can purchase the coverage:
Short-term disability insurance can provide weekly benefits for a limited time—usually six weeks to two years. This coverage is designed to offer what is known as “own occupation” coverage which means benefits are paid if you are disabled due to a sickness or injury and are unable to perform the material and substantial duties of your particular occupation. As long as you are covered at the time of your disability and you qualify for benefits, short term disability coverage will typically replace 60% to 80% of your income. This coverage can be an effective way to protect yourself from the financial impact of a temporary loss of income due to a disability. Please note New York Life does not currently offer individual short-term disability coverage.
Long-term disability insurance, as the name suggests, is designed to provide financial protection for an extended period of time. Benefits are designed to last for a period of years, or to cover you to a specific age such as 65 or 70.2 If you have long term disability coverage and become disabled with a disabling sickness or injury, this coverage can replace 50%-70% of your income. With long-term disability insurance, you can qualify for benefits if you meet the definition of disability contained in your policy and meet other eligibility requirements. While the specifics of coverage vary, many long-term disability policies will pay benefits if you are unable to perform the substantial and material duties of your “own occupation” for the first 24 months of your claim. After benefits are paid for 24 months, the definition of disability in some policies changes to “any occupation.” This means benefits are payable when you are unable to perform the material duties of “any occupation” for which you are qualified by reason of your education, training, and experience. Many insurance companies offer an enhanced definition of disability option which allow you to extend the period of time you may receive benefits based on your ability to perform the duties of your “own occupation”. This coverage will usually cost more.
While government disability benefit programs, such as Social Security Disability Insurance (SSDI), are available to most workers who have been in the workforce for a period of time, the benefits these programs can provide may be insufficient to address all your financial needs in the event you become disabled and they typically do not offer all the features and benefits that you can purchase with an individual policy.3 In addition, some programs, such as the Worker’s Compensation program only cover work-related causes of disability if you are injured while on the job.
As we said earlier, there are typically two ways to obtain disability insurance coverage. One is obtaining coverage through your employer, or the second is by purchasing an individual policy from an insurance company directly.
While group coverage from your workplace may provide sufficient income protection, it’s important to realize that individual coverage can offer several additional advantages—and can be used to supplement your group workplace coverage:
Typically replaces 40% to 70% of your salary but may not include other forms of compensation like bonuses, commissions, or other variable compensation.
Typically replaces 50% to 70% of your salary, as well as bonuses, commissions, and other forms of compensation.
Benefit payments are taxable if the employer pays for coverage.
The benefits paid by an individually owned policy are tax free if paid with after-tax dollars.
No underwriting is required.
Underwriting is required.
Is not dividend eligible.
May be eligible for dividends.4
Rate guarantees are typically not offered or short-term (<5 years).
Premium rate guarantees are typically available.
Coverage is owned by the employer and may be canceled and may not continue if you leave.
Coverage is owned by you and can be taken with you if you leave your employer.
There are many reasons to choose individual coverage. For example, individual disability insurance coverage is perfect for small business owners who may not have the option of purchasing coverage through a large employer. Small business owners, self-employed certified professionals and primary income generators for a family are ideal candidates for purchasing individual coverage. In addition, professionals and high income wage earners who are likely to earn a considerable amount of money during their careers are good candidates for individual coverage. Individual disability insurance can also help replace more than just salaries, such as bonuses and commissions, and is a great solution for sales professionals, stockbrokers, and other non-salaried producers or representatives that receive income above straight salaries.
In the case of an individual disability insurance policy like New York Life’s MyIncome Protector, you can customize your disability policy by adding optional riders (for a fee) that can enhance your coverage. For example: You can add a Catastrophic Disability Rider that provides an additional benefit if your injury or sickness causes a severe cognitive impairment and/or you are unable to perform two of the six activities of daily living without assistance.
If you would like to purchase individual disability insurance on your own, be sure to ask a New York Life financial professional about MyIncome Protector. With this coverage, if your salary can support it, you can apply for up to $20,000 a month in benefit payments5 and you can customize your policy to meet your specific needs. You also keep the coverage even if you change jobs or employers. Best of all, this coverage is backed by New York Life, a company that has been honoring its commitments since 1845—so you know that it will be there for you when needed.6
While the decision to purchase insurance coverage is a personal one, disability insurance can be an effective way to help protect your lifestyle and future if you feel that a loss of income—for any period of time—is likely to create a financial hardship on you and your family.
The cost of individual disability insurance is determined by the policy and the benefits you select, as well as the rate classification you receive in underwriting. That’s why it’s so important to work with a financial professional who will help you look at all your needs and circumstances and help you create a customized solution that’s right for you.
While every policy is different, disability insurance generally covers disabilities that are the result of sickness or injury. Coverage exclusions, such as preexisting conditions or occupational hazards, will be outlined in your policy. What’s more, the types of coverage offered by different carriers may vary and the requirements to be eligible for benefits may also vary, so it’s important to compare policies before making any decisions.
Yes, these two products operate independently. Any health or medical expense coverage you have is separate from any disability coverage you may purchase. In fact, if you buy disability insurance and become eligible for benefits after becoming disabled, you can use your disability benefit payments to help pay for your health insurance premiums or for expenses not covered by health insurance.
Whether you retain your employment after becoming disabled depends on your specific employer, or your type of occupation. In addition, there may be state and local laws that affect your employment status if you become disabled.
It depends on who is paying for the coverage. If you have group coverage and your employer is paying your premiums, then any disability benefits you receive may be taxable as income. On the other hand, if you purchase an individual disability insurance policy and are paying the premiums yourself, then any benefits you receive are generally 100% tax free.
It depends on the type of coverage your policy offers. Some policies offer “Own Occupation: coverage which will pay benefits for as long as you are disabled with a disabling sickness or injury and are unable to perform the material and substantial duties of your” own occupation”. Other polices may have a two year “Own Occupation” standard which then changes to an “Any Occupation” standard after two years of benefit payments. This type of coverage pays benefits if you are disabled and cannot perform the duties required in “Any occupation” for which you are qualified by reason of your education, training and background. There is also a third option that allows you to be employed in a different occupation other than your Own Occupation and still receive disability benefits if you cannot perform the material and substantial duties of your Own Occupation. With MyIncome Protector, you can choose from these three different options. You can select the base policy’s definition of disability which provides “Own Occupation” coverage for 2 years and thereafter changes to an “Any Occupation” standard. Or you can also choose from two riders that will enhance the definition of disability - the “Extended Own Occupation” Rider extends the period of time you can qualify for benefits if you cannot perform the duties of your Own Occupation or you can choose the “True Own Occupation” Rider that will also extend the period of time you can qualify benefits if you are unable to perform you Own Occupation and allow you to work in an occupation other than your own occupation. A New York Life financial professional can go over all the details of these three different options to decide which may be best suited for you.
Government disability benefit programs may provide some assistance however the coverage offered may not meet all your financial needs. [6/7] Government programs such as SSDI base the amount of your benefits on how long a worker has been in the workforce and may not offer a variety of different features and options. In addition, a program like Worker’s Compensation only covers work-related causes of disability.
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If you would like to know more about MyIncome Protector, please contact your New York Life financial professional. Together, you can review all your options and determine a path that makes sense for you.
1LIMRA Insurance Barometer Study, 2021.
2For New York Life MyIncome Protector, the length of coverage for benefit payments can be two years, five years, 10 years, to age 65, to age 67, and to age 70.
3The average 2022 SSDI benefit was $1,358 a month, or $16,296 a year.
4For New York Life MyIncome Protector, dividends are not guaranteed but may be declared after the end of the fifth policy year.
5Benefit amounts are subject to underwriting and income qualifications.
6New York Life has received the highest financial strength ratings currently awarded to any U.S. life insurer by Standard & Poor’s (AA+); A.M. Best (A++); Moody’s (Aaa); and Fitch (AAA). Source: Individual Third-Party Ratings Reports as of 9/30/2023
7The average 2022 SSDI benefit was $1,358 a month, or $16,296 a year.