How Disability Insurance Differs From Health Insurance


 How Disability Insurance Differs From Health Insurance

Health insurance can be tricky, and it's absolutely essential to understand the basics before you get too deep into the topic.

First things first: what is health insurance? Health insurance is a contract between an individual or employer and an insurance company for which the person pays a monthly fee in exchange for coverage when they are ill or injured. Disability Insurance differs from health insurance in that it provides coverage if one becomes disabled.

Disability insurance can be a confusing topic, especially since there are three types: short-term, long-term, and permanent. Here's a quick rundown of how these differ, and what you need to know about each type.

Short-Term Disability Insurance
Short-term disability insurance is the most basic form of disability insurance. It kicks in after one has spent a certain amount of time out of work due to an injury or illness. The length of time varies based on the policy and the situation, but one might expect short-term disability insurance to kick in anywhere between 2 weeks and 4 months (3 months is more common).

If you've ever taken time off after a surgery, you've probably heard of short-term disability insurance. It's the disability insurance that your employer or your healthcare provider may have offered to you.

Long-Term Disability Insurance
Long-term disability insurance kicks in after a very specific period: either 12 months, 2 years, or 5 years (depending on the policy). This is longer than what short-term disability covers, but it doesn't cover individuals who are out of work for more than 26 weeks.

Permanent Disability Insurance (also known as "TDI") Permanent Disability Insurance is the mother of all insurance policies - it can kick in if an individual cannot work ever again for whatever reason.

The concept of Permanent Disability Insurance is a very new concept. TDI has only been around for the past two decades, and as such, it's gone through many changes.

When purchasing TDI, one must be sure to investigate all the fine print (specifically: what counts as an "incapacitating event," and make sure that it covers you). If one never returns to work after being declared disabled, then one can expect to receive monthly coverage for life. However, like everything else in life, there are pros and cons to this type of insurance.

Pros: If you are certain that you will never work again, then this is a great policy. However, the average payout is around $20,000 - which is a small sum when you consider how much one must pay out of pocket (since most people purchase TDI with a retirement plan). The amount that one must pay out of pocket for TDI may be even higher than the insurance policy itself.

Cons: If you have a chronic injury or illness that will prevent you from working, then permanent disability insurance could prove to be quite expensive.

Permanent Disability Insurance can also create problems if one doesn't understand what counts as an "incapacitating event," and therefore what time period they are insured for. Permanent Disability Insurance can be tricky to understand.

Here's an example of how Permanent Disability Insurance can be tricky:

In this scenario, a person is recovered from brain surgery. They are able to return to work, and for the next 2 months, they remain on temporary disability. In that time, the individual will receive $20,000 per month from their TDI policy. However, after two months have passed, the worker is unable to return to work; therefore, they stop receiving payments from their TDI policy (even though they're still on temporary disability). This sort of scenario could happen if one has an injury or illness that requires very active care - such as high-risk pregnancy - which could also seriously impact one's ability to work in future years.

In this scenario, if the individual were to purchase Permanent Disability Insurance, they might consider a different sort of policy that would continue to pay out until they were able to return to work.

Here's a few tips that everyone should keep in mind when purchasing health or disability insurance:

1. It's easier than ever to research various policies online. When shopping around for disability insurance, there are lots of options for comparison shopping. Always make sure you take the time to read all the fine print - especially what it means when an event is "qualifying" and "incapacitating.

2. Do your research! Research a policy before buying - especially when purchasing a policy through an employer. If one is not sure about the coverage that one receives, then it's important to find out and make sure that they've received the best coverage possible.

3. Be realistic about how long you'll be out of work when looking at permanent disability insurance. After all, this is insurance for a long-term injury - it's not going to cover you if you have complications from your illness or injury while it's ongoing.

4. Make sure that the event being insured for will stay covered under your policy (a lot of policies do not cover tinnitus or vertigo). If one is unable to work due to a problem with their body, and that problem can be treated with surgery or surgery, then it's important to make sure that the insurance policy will continue to cover the event.

As with anything in life, if something can go wrong, it probably will. This is especially true when shopping for disability insurance: if one isn't sure about their coverage - or if they are certain that they want a better policy - always take the time to shop around and get quotes from your employer. After all, some of these policies can run you thousands of dollars every year (and they're not cheap). So do your research and shop around!

Are You Paying Too Much for Disability Insurance?

I want to be clear that this is not a comprehensive list of all types of insurance - there are a number of other types of policies that I haven't even covered yet. But if you don't need more than what you have, or if you don't have any debt, then there's no reason to get disability insurance at this time. If you're already retired, then disability insurance is unnecessary. If one is in good health, then there's no reason to get permanent disability insurance - the payout is too small for the risk involved.

However, if you have a chronic illness or injury that will cause you to be out of work for long periods of time - or if one has an injury or illness that could cause permanent disability - then there's no reason to not get insurance on top of your other policies.

However, if one has a chronic illness, then it's important to carefully weigh the costs of permanent disability compared to the cost of purchasing more coverage through some sort of group policy. If I had brain surgery and was unable to work again due to my illness, I would likely be stuck paying for disability insurance for life; however, I would also likely be able to purchase coverage through a group policy that would cover me for the rest of my life.


When it comes to disability insurance, there are a lot of factors to consider:

1. Do you have any debt? If so, then you should get disability insurance as long as the premiums are significantly less than the debt that you're paying on. If you have no debt, then disability insurance can be unnecessary.

2. Do you have a chronic illness or injury? If so, then permanent disability could be an issue down the road - especially if one is unable to work for more than 6 months due to their ailment.


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