What would happen to your family if you suffered a serious injury and could not work for a year or longer? What if you unexpectedly passed away? Would your family be taken care of financially?
The best way to ensure this is to have disability and life insurance. Many companies offer both disability and life insurance options as a benefit. The first step is to research the benefits to know what options are available.
Disability insurance is helpful in the event you are disabled and unable to work, especially if you are the main source of income for your family. This insurance will pay a portion of your salary -- often 60 percent of it -- if you are disabled and can't work. Receiving a percentage of your regular income might be enough to keep your family financially afloat until you can return to work.
Don't think suffering a disabling injury can happen to you? A survey by Sun Life Financial found that people are three times more likely to suffer a disability or injury that keeps them out of work for a year before they hit age 65 then they are to die. That means that disability insurance is every bit as important as life insurance.
Fortunately, many employers offer this benefit. Unfortunately, just three out of every ten employees has taken out disability insurance.
How disability insurance works
If you sign up for disability insurance from your employer, your company will take out a portion of your regular paycheck to cover the costs.
If you become injured or disabled to the point that you can no longer do your job and can't return to work for an extended time, your disability insurance will kick in.
In general, there are two types of disability insurance offered by employers. Short-term disability insurance usually kicks in within 14 days of your disability. This insurance provides coverage that can last from six months to a year. Long-term disability insurance then takes over after this period.
Your employer's disability insurance may come with certain restrictions. First, the insurance will only cover a portion of your salary. That number varies, but most plans provide disabled workers with 60 percent of their salary.
Some policies will provide a percentage only of your salary. With others, both your salary and any bonuses you earn are used to determine coverage. As a side note, few plans will allow you to contribute to your 401(k) while disabled.
Some disability plans come with a monthly cap on how much coverage you can receive. For example, if you make $20,000 a month in income and bonuses, but your disability plan has a $10,000 monthly limit, you would want to adjust your spending patterns until you can return to work.
Many employers also offer life insurance benefits. Company life insurance plans typically offer either a flat fee in case you die -- say $70,000 -- or a multiplier of your annual salary. Life insurance policies offered might pay out two times your annual salary. If you earn $60,000 a year, your life insurance will pay out $120,000.
A company life insurance plan might not provide enough protection, many employees who take out company-sponsored life insurance plans do so as a supplement to their main life insurance.
Portability is an important issue, too. You want to make sure that if you leave or lose your job you can keep your life-insurance benefits. Some policies offered by companies do not allow their holders to take them along if they find a new job or lose their current one.
Like all employee benefits, you need to analyze your company's disability and life insurance options carefully. By doing the research you can make the decision on whether these plans are right for you.