How disability insurance works, and why it’s a good idea

Insurance works by transferring the risk of financial loss from the policyholder to the insurance company. When someone purchases an insurance policy, he or she pays a premium to the insurance company in exchange for coverage against certain risks, such as illness, injury, property damage or other losses. One type of coverage that is worth considering is disability insurance.

There are two types of disability insurance: short-term and long-term. Short-term disability insurance typically pays benefits for a few months to a year, while long-term disability insurance can provide benefits for several years or until retirement age.

Short-term disability generally refers to temporary impairments that affect your ability to perform regular activities for a limited period. Short-term disabilities may result from an accident, surgery, acute illness or temporary conditions like a broken bone or a severe flu, or even having a baby. The duration of a short-term disability could range from a few days to several months, but it is generally expected to be resolved with time or appropriate medical treatment.

Long-term disabilities are more chronic conditions, which are continuing impairments that persist for an extended period, typically more than six months or even a lifetime. These disabilities may result from congenital conditions, progressive diseases, injuries with lasting effects or chronic illnesses. Long-term disabilities often require ongoing medical treatment, rehabilitation or assistance with managing daily activities.

The duration and classification of disabilities may vary depending on regional definitions, laws and insurance policies. In some cases, short-term disabilities could progress into long-term disabilities if the condition does not improve within the expected timeframe.

Disability insurance provides income replacement if you become unable to work due to a disability. You may purchase disability insurance from an insurance company, either through your employer or on your own. If you became disabled and couldn’t work, you would file a claim with the insurance company. The insurance company would then review your claim and may require documentation from your doctor or other medical professionals to verify your disability.

When your claim is approved, the insurance company would begin paying you a portion of your pre-disability income on a regular basis, typically monthly. The amount of the benefit and the length of time vou would receive it depend on the terms of your policy.

Make sure that you understand the terms of your disability insurance policy and what it covers before you need to file a claim.