Compare and Contrast of Life and Disability Insurance Mona Everhart FP/101 April 28, 2013 Zeno Gavales Compare and Contrast of Life and Disability Insurance Death and disability are difficult subjects for most families to discuss, but insuring against both is an important part of safeguarding a family’s future. Most people recognize the value of life insurance and will have at least a nominal amount, possibly taken out at the time of marriage or the birth of children. Disability, however, is not something many view as necessary insurance, even though our chances are 33% higher each year of becoming disabled than of dying. Bajtelsmit & Rastelli, 2012) Both types of insurance safeguard a family’s future.
Life insurance is paid out when a policy holder dies and can offer vital relief to a surviving spouse with children to raise. Similarly, if one parent is seriously injured and cannot return to work, disability insurance can assist financially to help keep that family afloat during this unexpected crisis. Both types of insurance have restrictive clauses. For instance, life insurance may specify certain forms of death do not qualify to collect on the policy.
Similarly, disability insurance may be restrictive as to working a specific job or any job at all. Large employers often offer life and disability insurance as part of their benefit options. Some employers offer short term disability at no charge to their employees. Short term is when a person is sick or injured and expected to be off the job for more than a few days. They may be required to use all their sick days and vacation days, before the short term disability will be applied.
When it is, it will generally be around 60% of the employee’s income.Similarly, companies often offer a certain amount of life insurance to their employees at no cost. (Bajtelsmit & Rastelli, 2012) Another similarity between life and disability insurance is that companies will often have special group rates for their employees to buy additional coverage. Both types of insurance have age-based premiums attached to their cost. The older the individual, the higher the insurance cost will be. Both types of insurance are maintained with monthly premiums and no deductibles need to be met before payout is made.
A major difference between life & disability insurance is that life is paid out in one lump sum after the occurrence of a qualified death has taken place. However, when a person becomes disabled, they are not paid out in this manner. Depending on the terms of the policy, recipients may get somewhere between 60 – 70% of their predicted income over the term of their disability. If their disability is permanent, they will continue to receive this supplemental income until they reach the age of 65. Another difference between the two types of insurance is the screening process of applicants.
Those applying for disability insurance undergo a much more in-depth review. Death is something that can be calculated fairly easily based on statistics, but unlike the certainty of death for all, it is not as easily predicted who will become disabled in their lifetime. (Sullivan, 2009) Another similarity is that both life insurance and disability insurance tend to require higher coverage when dependent children are living in the home, than what is required in latter years of life. Empty nesters will sometimes reduce the amount of coverage they maintain after their children are grown and their need for the additional protection lessens.Despite the similarities and differences between life and disability insurance, the one thing we can count on is that both happen when we least expect it.
Having insurance provides assurance and peace of mind that we will have a better chance of avoiding financial calamity should the unfortunate happen. References Bajtelsmit, V. L. , & Rastelli, L.
G. (2012). Personal Finance (Custom Update Edition). Hoboken, NJ: John Wiley and Sons, Inc..
Sullivan, P. (April 28, 2009). Life and Disability Insurance. Retrieved from http://www. nytimes.
com/2009/04/28/your-money/life-and-disability-insurance/lifeinsureprimer. html? pagewanted=all&_r=0
