What's up Internet? My name is Ian Bloom. Welcome to Nerd Finance. I'm your resident financial life planner and huge nerd!
In today's episode, we are going to be covering disability insurance. To start off, let me paint you a picture here. You are a champion bear wrestler. In fact, you're probably the only bear wrestler...but, you are a part of the bear Wrestling Federation and you get injured in a tragic bear wrestling accident. Who's surprised? I'm not sure, but the two types of disability insurance start to play in here. Where do they cover you?
Short term disability covers you while you're basically getting better from your injuries. So, it starts seven days in and usually lasts about 90 days. It's gonna cover you for one hundred percent of that huge bear wrestling salary that you get, which is awesome! Now, after that 90-day period, long term disability is going to kick in.
So you're healing from your wounds, but maybe you shouldn't step back into the ring with another bear just yet. Who would ask you to do that when you don't have full range of motion in your leg? Well, long term disability is going to cover you for about 60% of your salary and it's going to cover you until you're healed. Now that being said, it will cap out at your retirement age, but for the most part you shouldn't expect to not get back in the ring and wrestle bears. Because if you could, why wouldn't you?
Those are the basics of long and short term disability, but these come into play in a couple of different ways. First off, you should know that if your employer is paying the tax on that disability benefit. If they are, you will have to pay tax on the income when you receive it from the benefit. So, should something happen to you and you be receiving some money from your disability insurance, that is fully taxable income. On the offhand that you either own your own disability insurance or have the ability at your employer to pay tax on your disability benefit, you will then receive the benefits tax-free. So, if this is an option at your employer I often caution clients to please make sure to do it. Even though it represents a slightly greater expense today, it may represent a much bigger benefit should something happen to you. And let's be real if you got injured wrestling bears, you're going to want all the money that you can get, because you have to support that bear wrestler lifestyle.
In any case, I hope this video was at least somewhat silly and helpful for you. Thanks for watching! Have a wonderful day!