I get asked often what disability insurance is. In short, disability insurance is actual insurance that protects your paycheck.
Many people don’t understand exactly what that entails. Basically, it means that you can purchase a policy that will give you benefits if you’re unable to work due to an illness or an injury. In many ways, it is similar to worker’s comp (worker’s compensation), but it’ differs in that it is a personal policy that you have for yourself. If you are unable to work due to an illness or an injury, your policy will give you a percentage of your salary until you’re able to return to work.
Many people want to know the differences between disability and life insurance. Disability insurance protects your paycheck, whereas life insurance, although it can be used for paycheck protection, applies only when you die.
The other key difference between the two is that the main purpose of life insurance is to provide a benefit to your family or your beneficiary. Disability insurance is for you, personally, while you are unable to work. With life insurance, if you pass away, that money can be used in a number of different ways to benefit others. Most people immediately think that it could be used to pay for a funeral. Other ways to use it include caring financially for your young children or spouse, since they would no longer be collecting your salary, or in leaving a legacy. Someone could leave a legacy to an animal shelter, or leave money for their kids. For a family that is not very wealthy, life insurance is a way to leave money to their children when they pass away.
In summary, disability insurance will protect you while you’re alive and give you a portion of your paycheck; life insurance would give your family your paycheck if you’re no longer around.