From the course: Risk Management and Insurance Planning: Designing for Client Needs
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What are insurance benefits?
From the course: Risk Management and Insurance Planning: Designing for Client Needs
What are insurance benefits?
So, what are disability insurance benefits? Well, when someone with disability insurance has an accident or illness that meets the policy's definition of disability, then the insurance company will pay that person a set amount on a set schedule while that person is considered disabled. The dollar amount of benefits received varies with the plan, but it is typically between 50 and 70% of the person's pre-disability income, and it is usually paid out bi-weekly or monthly. The percentage of income is only part of the story though, as the monthly payment a person gets may or may not be taxable. If you paid for the insurance premium with after-tax income, then you'll receive the insurance benefits tax-free. If the insurance premium was paid, say, by your employer through a group plan, the premiums were most likely paid with pre-tax dollars. So in this situation, any benefits received would be subject to income taxes. This is important because it will impact how much cash flow will be…
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