For the self-employed and those with very high incomes, private disability insurance can be a good way of protecting the finances of both themselves and their families. Unlike group disability insurance, private disability insurance allows an individual the freedom to change jobs and occupations without a break in coverage. Private disability insurance may also offer significant tax advantages and can offer more coverage than many standard disability plans. Individuals with significant financial responsibilities should also consider purchasing this sort of coverage.
While many governments provide some kind of disability insurance or benefits to disabled workers, these benefits are often very limited. For example, the United States Social Security Disability Insurance (SSDI) program may provide a worker with only a fraction of his normal income if he becomes disabled. Long- and short-term disability insurance can help fill the financial gap for these workers. Many employers offer this ability insurance as part of their benefits package, though the coverage may be limited to anywhere between 50 to 80 percent of the worker's income. If the worker and her family cannot live on such a reduced income, obtaining private disability insurance can be a sound move.
While many financial advisors may discourage people from purchasing short-term disability insurance, instead encouraging them to build up their savings to cover the financial liability of a short illness or disability, many note the advantages of private disability insurance. In the United States and perhaps in other places, private disability insurance benefits may not be taxable, representing a huge financial savings that can be very important in situations involving a significant illness or medical problem. This type of savings may not be available with the purchase of a group policy.
Another advantage is that private disability insurance is far more customizable than group offerings. While some employers may offer employees the opportunity to increase their coverage, employee may not be able to specify other terms, such as the ability to lock in premium rates through a policy that can't be canceled. In addition, a policy may only pay benefits if the worker becomes so disabled that he is unable to work any job at all; otherwise, he may be required to work in a different job at a lower salary, which could result in financial hardship for his family. By obtaining private disability insurance, the worker may be able to get what is known as own-occupation insurance. While this can be costly, it also prevents the insurer from denying her benefits if she is able to take a job but only at a much lower salary.
