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. 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 >>
  2. Are My Social Security disability benefits taxable?

    In some situations and in some states, your Social Security disability benefits are taxable. Read Answer >>
Related Articles
  1. 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.
  2. Insurance

    The Disability Insurance Policy: Now In English

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

    Protecting Your Income With Disability Insurance

    For a high-earning professional, income protection is essential. Here's what to look for in a disability insurance policy.
  5. Managing Wealth

    Tips for Insuring Your Salary

    Those with high incomes really can’t afford to be without disability insurance. Here's why.
  6. 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.
  7. Insurance

    5 Things You Need to Know About Disability Insurance

    It's important to understand the true value of your ability to earn income, and to make sure it's protected.
  8. 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 ...
  9. 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.
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. Disability Insurance Trust Fund

    An account within the Social Security Trust Fund used to pay ...
Hot Definitions
  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  2. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  3. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  4. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  5. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  6. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
Trading Center