A:

Disability-income insurance is insurance that provides financial benefits to a policyholder in the event of sickness or injury that inhibits the ability to work. Disability-income insurance is meant as a substitute of no more than 80% of income on a tax-free basis should illness keep you from earning an income in your occupation. Some things that must be considered before choosing disability insurance include:

a) whether there is a waiting period before income kicks in,
b) whether the policy covers short and long term disabilities, and
c) whether the policy covers disabilities resulting from accidents or illnesses.

Another source of disability insurance is the Social Security program. The Social Security Administration (SSA), which is responsible for retirement benefits, also administers disability benefits. Eligibility for SSA disability payments is based on being unable to perform any gainful employment and not the job that was being performed at the time the disability began. In other words, being a firefighter or a construction worker does not entitle one to higher disability benefits than people in other professions. Social Security disability payments are subject to federal income tax if your "combined income," adjusted gross income plus any nontaxable interest income and half of your Social Security benefits, exceeds certain limits. To find out more about SSA disability payments, go to socialsecurity.gov.

For more, see Critical Illness Insurance: Get Paid If You Get Sick.

This question was answered by Chizoba Morah.

RELATED FAQS
  1. What are the maximum Social Security disability benefits?

    Find out the maximum Social Security disability benefits for qualifying individuals and their families in 2016, including ... Read Answer >>
  2. Is there a limit on the amount of disability insurance that I can buy?

    Disability insurance policies are designed to partially replace your income in the event that you become disabled and cannot ... Read Answer >>
Related Articles
  1. Insurance

    The Disability Insurance Policy: Now In English

    Learn to translate this complicated policy so you can rest assured you're covered.
  2. Insurance

    Choosing The Best Disability Insurance

    Social Security benefits can be hard to collect. Find out why you need disability insurance to protect your income, and learn how to choose the right policy for you.
  3. Financial Advisor

    Advising FAs: Explaining Disability Insurance to a Client

    Disability is a very critical type of insurance that most individuals should consider carrying. When it comes to your personal finances, long-term disability can have a devastating effect if ...
  4. Managing Wealth

    Tips for Insuring Your Salary

    Those with high incomes really can’t afford to be without disability insurance. Here's why.
  5. Insurance

    How to Protect Your Income No Matter What

    What does it mean to insure your income? Here are a variety of ways to do it and some insights into when it might make sense to invest in income insurance.
  6. Managing Wealth

    Top 6 Features Of A Great Disability Policy

    Many people consider buying life insurance, but few think to prepare themselves from long-term illness or disability. Find out how to shop for disability insurance and protect yourself from financial ...
  7. Retirement

    Do You Qualify for Social Security Disability?

    When it comes to qualifying for Social Security Disability Insurance, you either do or you don’t. Here's how to find out if you do and how to apply.
  8. Retirement

    Step by Step: Applying for Social Security Disability

    Applying for disability benefits is no easy task – but it's well worth your time and effort if a disability is preventing you from earning a living.
  9. Financial Advisor

    Disability and Business Overhead Coverage for the Self-Employed

    What every small business owner or professional needs to know about individual and business overhead disability income insurance plans.
  10. Financial Advisor

    Top 3 Financial Steps to Take on Disability

    Going on disability can be a stressful time financially. Here are 3 steps to take on disability to help protect against significant financial blowback.
RELATED TERMS
  1. Disability Insurance

    A program managed by the Social Security Administration that ...
  2. Any-Occupation Policy

    A term used in the insurance industry to refer to a specific ...
  3. Disability-Income (DI) Insurance

    An insurance product that provides supplementary income in the ...
  4. Waiver Of Premium For Disability

    A provision in an insurance policy that states that the insurance ...
  5. Concurrent Periods

    A period of time in which more than one injury or disability ...
  6. Total Permanent Disability (TPD)

    A condition in which an individual is no longer able to work ...
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. Derivative

    A security with a price that is dependent upon or derived from one or more underlying assets.
  3. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  4. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratio has become the industry standard for such ...
  5. Death Taxes

    Taxes imposed by the federal and/or state government on someone's estate upon their death. These taxes are levied on the ...
  6. Retained Earnings

    Retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested ...
Trading Center