4 minutes read

Disability Insurance – How to choose the right cover

Vincent Heys

Disability insurance gives you peace of mind, especially if you rely on your income to support yourself and your family. Without disability insurance, you may struggle to pay for your basic living expenses, medical bills, and other necessary expenses. It can help to bridge the gap between your lost income and your necessary expenses, providing financial stability during a difficult time.

What is disability insurance?

Disability insurance is a type of insurance that provides financial protection for you in case you become unable to work due to an illness or injury. Its purpose is to give you a steady stream of income, allowing you to pay for your living expenses and maintain your lifestyle.

The benefit amount of a disability insurance policy is typically a percentage of your income. The benefit period, or the length of time that the policy will pay out benefits, can vary from a few years to all the way to age 65, depending on the policy terms. The waiting period, or the amount of time between the onset of the disability and the start of benefits, can also vary from a few weeks to several months.

Is private or group benefits disability insurance better?

You can get disability insurance as part of your employer’s group benefits plan or purchase it privately. Many employers offer disability insurance as part of their group benefits package, and some may even pay the entire premium. However, keep in mind that employer-sponsored disability insurance policies may not offer enough coverage for you, particularly if you have a high earning potential

Individual disability insurance policies offer more flexibility and customization options than group benefits plans. You can choose the amount of coverage you need, the length of the benefit period, and the waiting period before benefits begin. The cost of an individual policy will depend on various factors, including your age, health status, occupation, and income.

Is the disability insurance payout taxable or tax free?

If you pay the premium with after-tax dollars, then the benefit will be tax-free but if you get the tax benefit while you are paying for the disability insurance coverage then the benefit will be taxable. This is the case with group benefit plans and private insurance.

How do I choose the right cover?

  1. Assess your income needs

    Start by creating a Wealthstack Dashboard to get an accurate picture of your financial wellness, and easily calculate the ideal amount of disability cover to take out. Also key is to understand if you have a low or high risk job – this will affect your policy premium but also the cover required.

  2. Understand the basics

    Disability Insurance provides cover for any illness or accident that affects your ability to generate an income. The cover is not linked to a specific list of illnesses like critical illness insurance. Rather, you will be covered in the event that you cannot work due to anything from cancer to mental illness, for example. Disability Insurance also covers you for partial, temporary or permanent disability. This means that if you are only able to work some of the time, because of a partial disability, your cover will make up the shortfall in your income. Similarly, if you are unable to work for a few months due to a recovery season, your policy will pay out for that period. And should you be unable to work permanently, your cover will pay out the agreed amount for as long as your policy is in place. Take note that all disability insurance policies and pay outs normally end when you turn 65 years old.

  3. Check the policy document

    It’s important to review the terms and conditions carefully, including the benefit amount, benefit period, waiting period, and any exclusions or limitations. If you’re unsure if your current or prospective policy is a good option, book a call with a Wealthstack Expert. We can chat through that any many other financial wellness factors to make sure you choose the right option for you and your family.

It’s advisable for you to round-out your insurance cover with quality critical illness insurance as these two policies, though different, go hand in hand to create surety for the future. Find out more about critical illness insurance here.

At the end of the day, you need to remember that insurance is not here to make you rich – it’s here to protect and provide for you should challenges arrive. Disability insurance can provide valuable financial protection for you in case you become disabled and are unable to work. Whether through an employer-sponsored group plan or an individual policy, disability insurance can help to ensure that you’re able to maintain your standard of living and meet your financial obligations. Be sure to carefully consider your options and choose a policy that meets your needs and budget.


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