Short-, long-term disability can keep employee budgets afloat

Nov. 25--Insurance policies and the jargon surrounding them can be confusing for the average person, so getting educated on the topic can be an important step in proper coverage for area families.

Does an employee need long-term or short-term disability insurance? What's the difference between whole life and term life insurance, and which one is best? Disability insurance and life insurance usually take precedent for an individual's well-being, but choosing the best plan is just as important as having insurance in the first place.

Freddie Ferrell, an agent with Insurance Professionals of Oklahoma, has been working with employer benefits since 1995. He says he's a big proponent of disability insurance. He had to use it himself as a young man and said it is important for people to have.

"For lack of a better term, disability insurance is paycheck insurance," Ferrell said.

Disability insurance is designed to cover an employee's income in case he is no longer able to work. Under the umbrella of disability insurance are short-term and long-term disability, and both serve different purposes.

Ferrell explained that short-term disability is designed to pay benefits sooner and over a shorter period of time, while long-term is designed to ensure an individual can survive for an extended period of time if he is unable to work.

According to AXA, a French multinational insurance firm, short-term disability policies may pay benefits for up to two years, although many policies pay benefits for only three months, six months, or a year, while long-term health disability can pay benefits for a few years, up to age 65, or even for a lifetime.

Disability policies also have different "elimination periods," which is the time in between when the individual becomes disabled before he begins receiving benefits. Short-term policies generally have waiting periods ranging from zero to 14 days, while long-term periods can range anywhere from 30 to 720 days.

According to the AXA, it generally makes more sense to purchase long-term disability insurance, because while most disabilities only last a short time, it's much easier to recover from a short time out of work, while a long-term disability can be detrimental to ones financial stability.

Regardless of what policy or type of insurance plan a client is considering, agents in Tahlequah recommend talking to a professional before making a decision.

Ferrell said short-term policies tend to be more expensive than long-term policies.

"So if you get hurt, get sick and can't work, it's going to provide you with a percentage of your income. Short-term is great, but it's typically short and has a duration of, say, maybe eight weeks, 10 weeks, 13 weeks; it'll have a defined period depending on the disability contract," said Ferrell. "You probably see 70 percent of short-term claims are used for folks who have a baby. This way you'll still get a percentage of the paycheck, usually 50 to 60 percent."

Long-term disability insurance is more important because the employee is protecting his income for an unspecified length of time.

"If a long-term contract is written correctly, it will go out until where Social Security can integrate," Ferrell said. "Health insurance is going to be your No. 1 employee benefit you should always have; second is long-term disability. Health insurance is protecting your health, while long-term disability is protecting your income, so it's very important."

Similar to disability insurance and its policies is health insurance. Life insurance policies typically fall under the categories of term life and whole life, and each offers unique advantages and disadvantages.

Term life is designed to allow people to purchase the protection they need for the amount of time they require. Term-life policies have guaranteed death benefits but do not have a cash value, unlike a whole-life policy. Most term-life policy premiums increase at pre-determined intervals, depending on the policy purchased, while long-term policies premiums are locked in when they're bought.

Mark Hodson, with State Farm Insurance, said State Farm has more life insurance policies than any other company in the world. He said policies typically vary, depending on clients' needs.

"The advantage with a short-term policy is, it allows you to purchase the largest amount of protection at the lowest cost over a particular period of time," Hodson said. "So on a short-term basis, you can get more for your buck for a shorter period. The disadvantage to long-term is it may be more expensive initially, but as you get older, with that premium locked in, it's going to last you all of your life. What happens with most of the term policies is they are canceled before a person dies."

Some companies offer a hybrid plan, called a universal life policy. Hodson said these plans give clients a little more flexibility than others. He said it is possible to add to and reduce coverage with a universal plan, as opposed to most whole-life plans, which require the client to get a new policy.

"You can determine what your death benefit is, and sometimes you can determine what your premium is," Hodson said. "Most of the time, if you stop making the payments on a term- or whole-life policy, you're probably going to lose it. A universal life plan, though, I kind of look at like a pot that you put a bunch of money in, and out of that will be a little spigot that [is used to pay the] premium it takes for the death benefits, and also, if you need to pull it out for a loan, you can do that."

But if a client loses his job and can't make his payments, although he's not putting anything into the policy at that point, he's got money on hand.

"So we're going to take some of that to pay your premium and keep your policy going," Hodson said. "It obviously won't grow as much because you don't have as much in your pot, but you can keep your policy, and that's an advantage of a universal plan."

Hodson said anytime someone is responsible for paying his own insurance premiums, he should talk to an agent about coverage.

"It depends on if you've had any life changes, but people should review their policies once a year and at least once every other year," Hodson said. "The more you can educate yourself on insurance and what it's all about, the better it's going to help you. And the earlier people get themselves educated, the better off they're going to be."

What's next

A look at homeowner's and personal property insurance, including renter's insurance.

___

(c)2015 the Tahlequah Daily Press (Tahlequah, Okla.)

Visit the Tahlequah Daily Press (Tahlequah, Okla.) at www.tahlequahdailypress.com

Distributed by Tribune Content Agency, LLC.