purpose of insurance is to protect people against financial disaster
when they are unable to earn a living because of sickness or injury,
or to give their dependents some type of income after they die.
Whether to purchase insurance is an important financial decision
about protecting one's earnings and lifestyle.
companies pay the entire insurance premium, or pay up to a certain
amount of coverage. Some employers require waiting periods, where
for example an employee may receive limited benefits for the first
year of employment and additional benefits on each anniversary of
the start date.
There are also government disability insurance programs, which offers
less coverage; not everyone qualifies for these programs. Five states
- California, Hawaii, New Jersey, New York, and Rhode Island - have
mandatory disability insurance programs for residents. Government
workers and military service members have disability benefits programs
to choose from.
disability. When an employee needs to be away from work for
an extended period - say, for a nonwork-related disability like
maternity, illness, or injury - that employee may have access to
a short-term disability (STD) program, which helps provide at least
partial income protection. Short-term disability insurance is a
more common benefit because the chance of an employee being unable
to work for a short period is higher than the chance of being permanently
employer's STD program may not cover all employees. To become eligible,
an employee may need to have worked at least 30 hours per week,
and to have been working for at least 90 days continuously. Short-term
disability coverage usually begins only after the individual has
been out of the office for eight consecutive days.
configuration for an STD plan is as follows: the employee receives
100 percent of base salary (or prior year's W-2 earnings, whichever
is greater) for the first 15 days, and 66.7 percent of base salary
thereafter, up to a maximum of 165 days. The plan might cover a
maximum of 180 days (i.e., 26 weeks) for each period of continuous
payout percentage is less than 100 percent because insurance companies
and the government want to deter workers from not returning to work
disability. Every year, 12 percent of the adult U.S. population
suffers a long-term disability, and one out of seven workers will
suffer a five-year or longer disability before the age of 65. These
high numbers underscore each employee's chance of having a disability.
disability insurance usually begins after the short-term disability
coverage period ends. It covers a portion of salary in case an employee
is out of work for an extended period because of illness. Usually
there is no charge to the employee. Check with your employer about
disability insurance can provide valuable protection. If you become
unable to work, regardless of the reason, the combination of your
living expenses and your lack of income could bring extreme financial
hardship to your family. Disability insurance provides replacement
income in the event that you can no longer work.
Most employers - 95 percent - offer a life insurance benefit,
according to SHRM. Employers of all sizes offer such benefits, SHRM
reports. Some people elect to purchase additional coverage to enable
their beneficiaries to meet their full financial responsibilities
in the event of the insured's death. Those expenses can include
providing income to dependents, paying off outstanding debts (including
mortgage payments), and paying estate taxes. The amount of coverage
people elect depends on their estimated expenses.
are two basic types of life insurance policies: whole life and term
Term insurance is most common; whole life typically is the choice
of people with large estates.
life policy (or permanent insurance) combines life coverage with
an investment fund. This type of insurance pays a fixed income on
the insured's death, and part of the premium is invested by the
insurance company to build more cash value. As long as the policy
is kept, the cash value built up through investment is tax-free.
Depending on the type of investment, the return on capital varies
and is not guaranteed. The high cost of whole life policies makes
them less common.
insurance has no investment component and lasts as long as the premiums
are paid. Renewable term insurance is purchased annually. The premium
is low when the purchasing individual is young, but the premium
increases with age. Term insurance can be terminated or scaled down
when the insured chooses, such as when a house is paid for and children
are grown and on their own.
cost of nursing homes and home healthcare is high and rising: currently,
about $50,000 per year, an amount not covered by Medicare or other
private medical insurance. Many people do not anticipate these costs
when saving for the future, despite the likelihood of requiring
this type of care - a likelihood that increases with age. Long-term
care insurance is intended to cover part of the gap.
for long-term care insurance are not inexpensive and depend on factors
such as age, sex, geographic location, and policy type. The cost
of such insurance is lower when the insured person is young. Planning
early can help an individual prevent his or her savings from running
dry after a few years in retirement.
companies - approximately 35 percent, according to SHRM - offer
long-term care insurance as an optional employee benefit. Participating
employees, as well as their spouses and parents, are usually eligible
to purchase coverage. Group coverage typically brings down the premium.
your insurance needs
For assistance in evaluating your insurance needs, consult a professional
advisor, who can help you decide whether the insurance benefits
offered by your employer are sufficient to meet your financial objectives,
or whether you would be better served with additional coverage.
Jessica Yang, Salary.com contributor