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"Disability Insurance" provides income when you can not work for an extended period of time due to an injury or illness. Make sure that your disability insurance pays for disability from either injury or from illness, not just one or the other. Check to see how your policy defines "can not work." Does it mean that you can not work at your customary occupation? Or does it mean that you can not work at any job? This can make a big difference. Suppose that you work at a job that pays $50,000 a year before an injury, but can only work at a job that pays $20,000 a year after an injury. If your disability insurance only pays when you "can not work at any job," then you suffer a $30,000 loss in income with no benefits from disability insurance. Disability insurance does not pay someone as much as they earn when working so that they do not have an incentive to stop working. Generally, disability insurance pays 60%-80% of what someone earned when the injury or illness began. Some disability insurance policies have constant payments and other policies have payments that increase with inflation. Disability benefits usually begin one to six months after someone stops working due to injury or illness. Policies with a longer waiting period before they start paying have lower premiums, but leave you without income for a longer period of time. You should find out when a policy begins payments. Also, find out whether disability insurance will pay benefits all the way until you reach retirement age. Some policies only pay for a limited number of years and leave you in the lurch before retirement age. Disability payments can be used to pay any bills, not just health care bills, but disability is often considered part of a health insurance package because payments are triggered by sickness or injury. Disability insurance generally does not pay for medical rehabilitation. If you pay for disability insurance, then the payments that you receive when disabled are generally not taxed as income. If your employer pays for your disability insurance, then some or all of the payments may be taxed. Disability insurance is especially important for business owners. Some policies provide recovery benefits beyond the period of disability when an owner must rebuild the business. Business owners should also consider "Key Person Insurance" to protect their business from loss due to the disability of key employees. There are other, limited sources of support for people with disabilities. Social Security only pays for people who cannot work at all. Workers' Compensation only pays if an illness or injury is work-related. Automobile insurance only pays if an injury is caused by an automobile accident. A helpful booklet is "The Consumer's Guide to Disability Insurance," Health Insurance Association of America, 555 13th St., N.W., Suite 600 East, Washington, D.C. 20004.
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