Learn how disability insurance works

Is Disability Insurance Income Taxable?

Filed under: Disability Insurance — Alston @ 8:34 pm February 4, 2011

People often question whether benefits or income from insurance claims is or should be taxable. The answer to the question of whether income from a disability insurance policy is taxable is based on whether the money used to pay for the policy was taxed or not.

As a general rule if premiums are paid with post-tax dollars income from the insurance product is not taxable. This means that for most situations if an individual paid the premiums for their disability insurance plan any payment received when you have a claim will not be taxable even if they receive income from their policy year after year.

If the company you work for paid your disability insurance premiums, chances are they paid them with pre-tax dollars. In this case, since neither the federal government nor the state received money on the front end it will take will expect to be receiving their cut on the back end. Your benefits will be taxable if your employer paid your disability insurance premiums.

An apparent exception to this can be a situation where you paid the premiums each pay period via payroll deduction. Although the company you work for will cut the check for your premiums, they will do so with money they took from you on a post-tax basis.

Exceptions to this exception are situations where premiums are paid with money taken from your paycheck via payroll deduction on a pre-tax basis. Payroll deduction can sometimes be on a pre-tax basis. (If the amounts deducted from your pay reduces the amount enter as your adjusted gross income for the tax year, the money was deducted on a pre-tax basis.)

Your tax situation may not be covered by this general rule. You should seek expert tax advice before acting on anything in this blog post. However in most cases disability insurance income is taxable if the premiums for the plan were paid with pre-tax dollars and disability insurance income payments are not taxable if the plan’s premiums were paid with post-tax dollars.

Long Term Disability Insurance for Individuals

Filed under: Disability Insurance — Alston @ 12:13 am January 29, 2011

Disability insurance is probably the most overlooked important type of individual or personal insurance. Although many have less life insurance than they need, few have any disability insurance at all.

With a good long term individual disability insurance policy, you can continue to stay in your home, eat the same food and maintain the same standard of living even if you are too sick or injured to work. Without disability insurance coverage you have far less security; you can wind up in a desperate situation without the income that these policies provide. Many people lose their homes after a prolonged illness.

People often fall into the trap of thinking that if it was important it would be included in the insurance benefits package paid for by my employer or by the government. This is a dangerous way to look at the issue.

The newly self-employed are often quick to replace their health insurance, but few people think about getting insurance to protect their monthly incomes.

Social Security does provide disability benefits to some but few will find the monthly income the program pays adequate. The benefits are poor and are hard to get. Few qualify and most have to wait a period of over two years to receive their first check.

Disability insurance coverage may be provided by your job, but it may not cover you fully. Many group disability policies will only pay you over for a short period of time. However, many people get injuries and other maladies last for years and years. If you don’t have long-term disability insurance you probably won’t get paid by anyone. And you may wind up not being able to pay your rent or mortgage.

Another problem with group disability insurance is that it isn’t portable. It may be included in your insurance benefits package so long as you stay with the same company. However, if you quit, retire or get fired you will probably lose your group disability insurance.

Since you can be denied disability insurance if your health history doesn’t meet their standards. This can mean that if you wait until you change jobs to apply for income replacement insurance, you will not be eligible from a health standpoint. Even if your health does not change, your cost for the policy will be more if you wait until you have another birthday

For these reasons buying your long-term disability insurance as an individual as opposed to as an employee is critical if you are to keep your home and protect yourself and your family.

« Newer Posts

Save on: State: