What is a disability premium?

Written by rod howell
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Paying premiums for disability insurance is taking a major step towards protecting your income. If you become injured or fall ill, disability insurance, or DI, will begin paying you benefits for as long as specified in your policy. Disability insurance comes in two common forms: short-term and long-term. The plan you choose can pay benefits to you in the short term (as little as a couple of weeks) or in the long term (as long as you are under age 70).There are many contributing factors in the final decision on how much the insurance company will charge you for the coverage.

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The Facts

A premium is a form of payment from an applicant to an insurance company for coverage. The amount of a disability premium payment depends on many factors. Rates are determined based upon age, gender, amount and length of the disability benefit period, length of elimination or waiting periods, frequency of payment and what industry you work in. Your benefits can be diminished if you are eligible to receive Social Security. There are options that can be purchased to provide extra coverage such as waiver of premiums, indexed income benefit and additional purchase benefit. Purchasing any options will raise your premiums.

Benefits

Having disability insurance is essential to maintaining a semblance of a way of life if someone is unable to work. Having this safety net insures that you have an income with which to pay bills until you are able to get back to work. If you suffer a very severe injury such as paralysis, a disability plan option is available to pay benefits to last throughout the rest of your working life.

Types

There are different methods of paying your disability premium. You can pay it monthly, quarterly, semiannually, or annually. Depending on what you choose, there may be administrative fees associated with your payment. For example, if you pay annually, you would pay the exact amount offered. If you decide to pay in instalments, there may be a small fee for processing. You may also have to pay fees if you choose to pay by check or money order instead of paying with a bank card or by automatic bank draft.

Considerations

In exchange for coverage provided by insurance companies, an insured must pay a premium. Disability insurance is just like most other insurances in that the rates determine the amount of your monthly benefit and the length of time you will receive it. Your employer may offer a DI plan, which would be less expensive to purchase. However, the policy will not move with you once you stop working for that company.

Misconceptions

Disability insurance isn't like life insurance--or most types of insurance, for that matter. The main objective is not to make someone or something whole again. Some companies offer to pay benefits that cover up to 80 per cent of your income, but no company will cover 100 per cent. The reason is that no one would have an incentive to get back to work after being injured. The industry you work in can have a major influence on your premium rates and can ultimately determine if you get any coverage at all. If your work is too hazardous or the history of claims filed is too high, your rates might be higher even though you are healthy. It is conceivable that a person who works in an office can pay higher rates than someone who works on a road crew, for example.

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