Pays a monthly benefit designed to partially or completely replace your income if you are unable to work. Considering that your largest asset is your ability to earn an income, a sickness or injury could eliminate or limit your ability to work and destroy your ability to meet your financial obligations and goals. Disability insurance payments are typically triggered by an insured individual’s inability to work due to sickness or injury. The best policies strengthen the definition of inability to work down to one’s own occupation and even specialty.
Operating as an independent broker for disability insurance, we shop the market and bring only the best options to you. We specialize in true own-occupation, own-specialty policies and have the experience and ability to custom tailor a solution to meet your needs.
Like all insurance products, disability insurance is a contract between an insurance company and an insured individual, or in some cases a group of individuals. The terms of a disability insurance contract can vary dramatically from company to company. It is important to work with an experienced, knowledgeable, trustworthy insurance professional and to be familiar with common provisions of disability insurance policies in order to ensure that the policy you obtain performs in the manner that you expect if you become disabled. Points of emphasis in a disability insurance policy include:
Definition of Disability – Determines the circumstances under which the insurance company will consider a policy holder disabled. A basic definition will stipulate that the policy holder must be unable to work in any occupation, be experiencing a loss of income, and be under the care of a physician. The most favorable definitions will state that the policy holder is disabled in the event that he or she is unable to perform the duties of his or her own occupation due to sickness or injury. Some policies will even go as far as to narrow the definition of own occupation to a particular medical or dental specialty. Own occupation policies are considered more desirable from a contractual standpoint but tend to be more expensive than any occupation policies. Beware of policies that define disability as the inability to perform the duties of one’s own occupation AND not working in another occupation. Remember that a disability insurance policy which requires the policy holder to not be working in any occupation is an any occupation contract regardless if it contains the words own occupation.
Non-cancellable/Guaranteed Renewable – Provisions that ensure that a disability insurance policy cannot be terminated for any reason other than failure to pay premiums, and that the cost of the policy cannot go up for any reason other than a request for additional benefits by the insured individual or failure to pay the premium. Although a policy can be guaranteed renewable and cancellable, or non-cancellable but not guaranteed renewable, the strongest policies include both provisions. Many group or association policies lack non-cancellable/guaranteed renewability provisions. Group and/or association policies very commonly increase in cost as one ages and can be terminated by the insurance company for reasons such as excessive claims.
Elimination Period – Determines the amount of time that must elapse while a policy holder is disabled before benefits become payable. Most insurance companies offer policies that allow an individual to choose an elimination period during the initial application process. 30, 60, 90, 180, and 360 day elimination periods are commonly available. Almost invariably, a 90 day elimination period will represent the best value for the majority of individuals. Notable exceptions exist for individuals covered by the Federal Employee Retirement System or other similar programs. The best policies do not require that an individual meet the definition of disabled on consecutive days over the duration of the elimination period. A policy may allow an individual to accumulate days of disability over a period of time that is longer than the elimination period. For example, an insured individual who has a 90 day elimination period may have as long as 210 days to accumulate the total of 90 days of disability required in order to receive benefits. In other words, an insured individual who is able to work, but due to sickness or injury can only do so on alternating days, may still receive benefits after he or she has accumulated enough days to satisfy the elimination period. Longer accumulation periods are associated with more desirable policies.
Benefit Period – The amount of time for which benefits are payable while one remains disabled. Options include 2 years, 5 years, 10 years, to age 65, to age 67, to age 70, and lifetime (usually with certain limitations). Longer benefit periods are typically more desirable, but it should be noted that disability insurance is only necessary to the extent that an individual needs or wants an income. An individual who is financially ready to retire has little or no need for disability insurance.
Most disability insurance policies allow an applicant to choose optional provisions which may enhance the contract or offer additional benefits. Common options include:
Residual Benefit – Pays a partial benefit due to partial loss of income as a result of a disability that is less than total. Residual benefits may be payable when an individual returns to work after a total disability if the individual is unable to work as long or as productively as he or she did prior to becoming disabled. Some of the strongest residual benefit riders do not require that a period of total disability precede a period of partial disability in order for benefits to become payable. The best residual riders may be triggered, once the elimination period is satisfied, by a partial loss of income that results from sickness or injury. Generally, lower income loss thresholds are associated with stronger policies.
Future Increase Options – Allow an insured individual to purchase additional disability insurance without proof of good health. Obtaining a disability insurance policy usually requires significant financial and health underwriting. Insurance companies often require lab analysis of blood and urine and a physical examination. Additionally, an insurance company representative will often interview an applicant regarding his or her medical and family history. In some cases, after obtaining appropriate consent, the insurance company will acquire and review copies of an applicant’s medical records. Applicants are often required to provide documentation of earnings by supplying copies of tax returns or employment contracts. A policy which includes a future increase option guarantees that an individual ay purchase a stated amount of additional disability insurance without any health-related underwriting.
Cost of Living Adjustment (COLA) – Increases the amount of benefits payable while one is disabled. Over the course of a lengthy disability, the purchasing power of an individual’s disability benefits may be significantly reduced. A cost of living adjustment may increase the benefits an insured individual receives while disabled in accordance with an index such as the Consumer Price Index (CPI). Cost of living adjustments may also be assessed according to a stated percentage regardless of inflation. Some policies allow cost of living adjustments on a delayed basis as a cost-saving compromise.
Many other riders and policy options exist. Consult an R. K. Tongue Co., Inc. insurance professional for additional information.
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