Short-Term Income Protection

At 29 years old, when I heard my doctor say, "It looks like you have cancer." The last thing on my mind at that moment was how I would be paying my expenses while I was being treated and recovering from the surgery to remove the cancer. Thankfully I had already planned for an interruption in my income due to an injury or illness.

How To Protect You Income

A short-term disability insurance policy will pay you a portion (50%-70%) of your gross pay (generally tax-free) if you are unable to work due to an illness or injury, for a predefined period of time. This type of insurance, if available, is especially helpful forwomen who are planning to have a family since a pregnancy is usually covered. These policies can be purchased by an individual or through a group policy provided by your employer.

How It Works

After you purchase a short-term disability policy and experience a covered illness or injury, you will complete and submit a claim form to your insurance provider. The insurance provider will review the information you provided and approve or deny the claim. Once approved, you will begin the elimination period (a waiting period before payments can begin) of between 0 and 14 days. After the elimination period you will begin receiving payments, as agreed in your policy, for generally no more than 2 years, again based on your policy.

Why You Need It

Everyone needs a plan to pay your monthly expenses in case you are out of work due to an illness or injury. The chance of experiencing a disability before retirement age is 3 in 10. This may not seem like a high chance but if you and nine of your friends were together in a room, three of them may experience some type of disability before reaching retirement age. Additionally, if having a child is in your future, a short-term disability policy can help reduce the disruption of missing work due to the pregnancy and birth of your child.

Why You May Not Need It

While having a short-term disability policy is one way to plan for lost income due to an injury or illness, there are other options.

• One alternative is to self-insure by building up 3 - 6 months of expenses in your S.A.F.E.
• Another alternative is to use your sick leave offered by your employer. If you choose this alternative you would need to have between 500 to 1,000 hours of leave available in order to take 3 - 6 months off for your recovery.
• The last alternative, and the one I used, is to use your employer's sick leave pool. This is generally offered by large employers where you join by submitting a certain number of hours and then can use up to a certain amount of time over a specified period of time. In my case I joined by submitting 8 hours of sick leave to the pool, I was then authorized to use up to 480 hours per year for qualifying injuries or illnesses once I depleted all of my other leave balances.

As with any insurance policy, the terms and conditions of each policy vary greatly so be sure to shop around before you buy a policy or choose an alternative to disability insurance.

There are a few ways you can plan for lost wages due to an illness or injury. Are you prepared?

Photo by: Senior Living.org

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