Disability insurance a factor in new legislation

In the case that an illness or injury prevents employment, consumers should understand the ins and outs of disability coverage

A new provision on disability insurance is expected to accompany a large scale healthcare reform bill that Senator Edward Kennedy is preparing to introduce to Congress.

According to a report in the Wall Street Journal, the senator, who is known for his longstanding commitment to advancing disability issues, is proposing a provision to the bill which would create a sort of disability insurance pool.

Unless people in the workforce opt-out of the program, premiums would automatically be charged and likely deducted straight from paychecks, explains the Journal.

One senate aid explained to the news source that if all American workers participated in the proposed program, the pool could reach $320 billion in the first year and then be funneled toward funding benefits should a participant be disabled.

The introduction of legislation with a focus on disability coverage highlights the important role this type of insurance coverage plays for many American families that - as a result of accident or illness - could find their main income earner worrying about the loss of their salary.

Disability insurance, which typically complements health insurance plans, is one way to prevent loss of income.

According to the Insurance Information Institute, 43 percent of individuals over age 40 will have a long-term disability event happen to them before age 65. The Social Security Administration estimates that a 20-year-old worker has a 30 percent chance of becoming disabled before retirement.

With proper coverage, someone suffering from a long-term disability event could have benefits paid for a few years through the rest of their life while someone who experiences a short-term disability would be eligible for benefits for up to two years, explains the institute.

In most states, says the Insurance Information Institute, some type of short-term sick leave is offered by employers and some also provide long-term disability coverage. But if an individual is looking for their own plan - they should understand the benefit period and look for a policy that will replace between 60 and 70 percent of taxable earnings, advises the group.

Some severe cases of disability will be covered by Social Security disability. For example, if a person can no longer perform the same duties they did before and if a disability is expected to last for at least one year or to result in death, a person is eligible for Social Security disability.

A worker must have been employed in a job covered by Social Security to even be considered for the benefits.

And should a disability continue after retirement age, the same disability benefits will automatically convert to retirement benefits, explains the Social Security Administration.

The Life and Health Insurance Foundation for Education reminds consumers that in addition to Social Security, employer sponsored coverage and individual plans, some other forms of protection against income loss do exist.

Workers' compensation insurance helps to protect people that have become disabled while on the job and employers in every state are required to provide this type of coverage.

According to the nonprofit education group, workers' compensation typically pays roughly two-thirds of pre-disability income.

Some states also offer their own short-term coverage options, says Life and Health. Residents of California, Hawaii, New Jersey, New York and Rhode Island in addition to Puerto Rico could be eligible for some benefits for a period not lasting longer than six months.

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Posted: June, 02, 2009

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