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Should I purchase my own disability insurance policy?

Many of us have life insurance, however very few of us have long-term disability coverage. Yet according to statistics, workers are more likely to sustain a long-term disability (one lasting longer than 90 days) than die at an early age.

Long-term disability insurance is fairly expensive, and people tend to think that they will be protected by workersí compensation or other sources. However, Social Security, workersí compensation, and employer-offered long-term coverage are often inadequate.

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What does workerís compensation insurance cover?

Workerís compensation covers injuries that happen on the job. Benefits vary widely from state to state, since benefit amounts depend on state provisions. The average weekly maximum is about $450, while the average weekly minimum (where there is a minimum) is $90. Most states pay benefits for the employeeís lifetime in cases of permanent total disability.

Tip Tip: To get details on workerís comp benefits, contact your state Department of Labor.

In addition to the requirement that an injury be work-related, the payments you would receive under workerís comp may be inadequate.

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How much disability insurance coverage should I have?

A disability insurance company will usually not cover you for more than 60% of your income. Look for a policy that provides coverage for this level. When you shop for a disability policy, be ready to prove your income level.

If you purchase the policy and pay the premiums yourself, the income received will not be taxable. Therefore 60% should come close to replacing your after tax income.

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How is disability defined?

The definition of disability in a policy is extremely important. It tells you under what circumstances you will qualify to receive benefits.

Own-occupation coverage pays benefits if you canít work at your chosen fieldóe.g., attorney or teacher. Own-occupation policies are the most expensive type of disability coverage because they provide the broadest coverage. (If you cannot perform the duties of your own occupation, you can take a job in a related field, make a decent income, and still collect the benefits.)

Any-occupation coverage pays benefits if you canít work at any occupation for which your education level and training has prepared you. Thus, if you can no longer perform the duties of a nuclear physicist, but you can teach physics at college level, you will not receive benefits.

Note Note:Many policies are own-occupation for a period of years, at which point they convert to any-occupation.

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When can I qualify for Medicaid?

Eligibility rules vary from state to state, but beneficiaries are generally required to "spend down" their income and assets to qualify. New laws in many states make it possible for the spouses of Medicaid nursing home residents to keep more income and assets than previously allowed.

By law, nursing homes cannot discriminate against Medicaid patients, but in reality, many keep "waiting lists" for them while enrolling patients with more income and assets. Medicaid coverage for home care is very limited in most states.

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