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How to Insure Your Income: Insurance as the Solution

There are many different kinds of insurance coverage available that cover disability. We'll consider the critical ones throughout this book. But, for the sake of quick comparison, what follows is a basic review of the types of losses and benefits.

As we've already seen, the most common form of coverage is disability income insurance (also referred to as loss of time insurance). This pays you a weekly or monthly benefit for disabilities due to accident or sickness. The primary purpose of disability income coverage is to replace personal income lost due to a disability.

Disability income insurance is designed to replace lost income following the onset of a disability. It guarantees the delivery of dollars in an exact, predetermined amount, exactly when needed.

Disability income policies are issued on an individual basis or on a group basis through an employer-sponsored plan, labor union or association. Benefits paid are in accordance with the policy's provisions and, to a degree, your loss of income.

Some states (California, Hawaii, New Jersey, New York and Rhode Island are the best known) provide state benefits for non-occupational disabilities. The amount of the benefits will vary depending on the state. Generally, the state plan will provide 50 percent to 60 percent of your wages for a limited period of time -- such as six to 12 months.

Although technically a health insurance product, accidental death and dismemberment (AD&D) coverage is frequently provided as part of an individual or group life insurance contract. It may help out in the event of a disability. AD&D coverage pays a principal sum for accidental death, in accordance with the policy's provisions and definition of accidental death.

The principal sum is similar in meaning to a policy's face amount. This same amount is paid if you lose use of two arms, two legs or two eyes due to an accident. This amount usually is identified as the capital sum if the policy is paying an accidental dismemberment benefit.

Long-term care (LTC) insurance pays for the care of persons with chronic diseases or disabilities, and may include a wide range of health and social services provided under the supervision of medical professionals. LTC often covers nursing home care, home-based care and respite care.

Limited health insurance contracts apply to a variety of special circumstances. To ensure that you have sufficient notice that the coverage is limited, every policy that provides limited coverage must, by law, state plainly on the first page of the policy: "THIS IS A LIMITED POLICY."

Accident only insurance provides coverage for injury from accident, and excludes sickness. Benefits may be paid for any of the following: death, disability, dismemberment or hospital expenses.

Credit insurance is listed here because of the limited nature of its coverage. This policy is issued only if you are in debt to a creditor. The coverage is limited to the amount of your indebtedness -- but some insurance companies will even balk at paying that.

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