Disability insurance is an insurance product designed to provide you with 40 – 60% of your gross income in the event you become sick or develop an illness that affects your ability to earn an income. The difference in policies are great, having a basic knowledge of the terms, types and payment methods are very important aspects you should understand and consider when selecting disability insurance. Because of the enormous differences between policies and companies it is important that your selection of coverage not be based solely on price. Instead you should develop an idea of your needs based on your life style and measure those needs against the options and benefits of each insurance provider.
One of the first things you should review and understand when selecting a disability insurance policy is the insurer’s definition of disability. This is important because it varies between insurers and products and is one of the most important things to understand. The definition tells you in what situations the insurer will pay the benefit, and to whom it will be paid in the event you become disabled. The following will list some types of disability insurance and also provides some of the key phrases used for various types of policies.
Every disability insurance policy from any insurance company can be very different. If you just buy the lowest price it could be like throwing your money out the window. You need to know the differences between an inexpensive disability policy with solid benefits and one that makes it very unlikely to pay benefits at all.
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Types of Disability Insurance
Own-Occupation Disability Insurance
The inability to perform the material and substantial duties of your regular occupation, the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled, they will pay the claim even if you are working in some other capacity. If you cannot perform the duties necessary to stay in your field of expertise, can you continue to work in a different occupation without losing your benefits?
Income Replacement Insurance
Many insurance carriers have switched to these types of disability insurance policies. Sickness or injury results in your inability to perform the material and substantial duties of your occupation and are not engaged in any other occupation. Does this sound fair?
Gainful Occupation Coverage
This type of disability insurance is very common amongst employer/group policies. These types of policies leave much of the decision making up to the actual insurance company. How uncomfortable is that. Because of sickness or injury you are unable to perform the material and substantial duties or your occupation, or any occupation for which you are deemed reasonably qualified by education, training.
Basics to know about disability insurance:
When you’re healthy and working, it’s hard to imagine being disabled by illness or injury. But it can happen. The odds are that one in three working Americans will become disabled for 90 days or more before age 65. Your chance of becoming disabled is much higher than your chance of dying during your working years. For example, a 35-year-old man is 2.5 times more likely to become disabled than die before age 65; a 35-year-old female, 3.6 times!
Individual disability income insurance can help provide protection against the financial uncertainties a disability causes. To make an informed decision, consumers should understand the definitions behind the terms below. Please note, these definitions are not complete and will vary according to the terms of the individual policy.
Total Disability: Individuals are considered to have a total disability if they are unable to perform occupational responsibilities as a result of illness or injury.
Partial Disability Benefit: If one is partially disabled and the ability to perform one’s job is impaired, it is important to consider protection to supplement lost income in case they cannot return to work on a full-time basis.
Non-cancellable: Insurers cannot terminate coverage as long as the policyholder pays his or her premium on time. The insured, however, may terminate the policy at any time. What’s more, this type of policy locks in premiums until a certain age, usually 65.
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Weighing Options
By making informed decisions regarding essential coverage options, solid disability income insurance protection can be purchased at cost-effective rates. Consider the following alternatives:
Benefit Period: The amount of time benefits are paid for a disability. Another premium-saving solution is to elect a shorter, five- or 10-year benefit period instead of choosing to continue benefits to age 65.
Elimination/Waiting Period: The minimum amount of time an insured must be disabled before collecting benefits. Elimination or waiting periods vary according to the terms of a particular policy. On average, the longer the waiting period, the lower the cost of the policy. In most cases, it’s better to save on the waiting period than the benefit period. If price is a consideration, it is recommended to move the waiting period out.
Riders: A rider is optional, added coverage on a policy and usually carries a premium. It’s important to consider adding a cost of living rider for coverage that helps disability benefits keep pace with inflation. Coverage provided by all optional riders can be refused.
The Importance of Disability Income Insurance
Amidst all the talk about the importance of long-term financial planning – from 401(k)s to IRAs – isn’t buying disability income insurance coverage an equally important consideration? There’s been a greater emphasis put on cost-effective, flexible products that the consumer needs. Today you may be insurable, but tomorrow – who knows?
Who Needs Disability Insurance?
Simply put, if you have a job, you most likely need disability insurance. The possibility of a disabling illness or injury may seem remote, but statistics paint a different picture. Nearly one in three women can expect to suffer a disability that keeps them out of work for 90 days or longer at some point during their working years. For men, the odds are about one in four. And one worker in seven can expect to be disabled for five or more years before retirement.
For many, a sudden interruption of income could have serious financial consequences. Most of us have some kind of personal debt, typically a mortgage or credit card bills. Would you be able to maintain your standard of living if you were too ill or injured to work for an extended length of time? Half of all home foreclosures in the United States result from disability, as do an alarming number of personal bankruptcies.
In addition, an accident or illness that keeps you out of work for a period of time can be very costly. That’s because people who become disabled not only need to continue providing for loved ones, but for themselves as well. A disabling injury or illness could lead to medical bills, modifications to your car or home, or other unforeseen needs that can be quite expensive. For all these reasons, almost anyone who works—whether they’re single, married, with children or without—should consider disability insurance.
There are various quality insurance companies that offer disability insurance, each one offering income protection coverage. Each of these companies differ slightly in their contract wording and options. Deciding which one is right for you depends on several factors, including your occupation, the type of coverage you need, how much protection you want, your current health status, and additional variables.
When you need to find out which disability insurance company is right for your personal situation, it’s a good idea to request disability quotes from Disability Insurance Experts. They’ll compare disability insurance companies for you, helping you find the best rates and policy options. Whether you’re recommended to go with Guardian Disability Insurance, MetLife, Mass Mutual or one of the other top disability insurance companies, you can be confident that you’re getting the policy that best provides the coverage you need.
TIP: When choosing among different Disability Insurance Policies , it’s important to look at several different variables. Don’t select the first plan you come across without making sure that it is the most favorable option for you.
3 Disability Policy Considerations:
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Strength of Disability Insurance Company – Be sure to select a solid insurer that’s likely to be around if and when you need to file a claim.
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Favorable Definition of Disability – Select a policy that includes an “own occupation” definition of disability. If you work in a particular specialty within your field, be sure that’s specified within the definition.
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Residual Disability Rider – Verify that the disability insurance plans you are considering include a provision for paying benefits if you experience a partial disability. It’s best to select one that doesn’t require loss of time and duties and that pays benefits based on loss of income.
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Disability Insurance Qualification Process
When you apply for disability income insurance, the underwriting process begins. During this process, the insurance company collects information about you and uses it to decide whether to issue you a disability insurance policy. Because a disability claim can cost an insurer a lot of money, the underwriting process is thorough. Any information you give, whether formally or informally, may be used to classify you as an acceptable or unacceptable risk. Working with DisabilityInsuranceExperts.com can be helpful; because they can answer any questions you might have and guide you through the underwriting process.
Applying for disability insurance
When you apply for disability insurance, you’ll be asked to fill out a lengthy application that includes specific medical, personal, and financial questions designed to give the company as much information as possible about your risk for disability. Your answers will be used to decide whether you will be issued disability insurance, in what amounts, with what coverage, and at what cost. You will be asked to provide confidential information about your sex, age, occupation, income, medical history, personal habits, finances, and so on, as well as information on other disability insurance coverage you may have. Answer the questions completely and truthfully. The insurance company has the right to cancel your coverage or deny a claim within a certain period of time (usually two years) due to errors or misrepresentations on your application.
Age and gender
You will be asked to fill in your name, address, date of birth, gender, and Social Security number, among other things. Your disability premium, in part, will be based on your age and gender. The younger you are, the less your premium tends to be. If you are female, you will sometimes pay a higher premium than if you are male (unless the insurance company offers unisex pricing). Females file more disability insurance claims than males, so insurance companies usually consider them to be a greater risk.
Occupation
Your occupation plays an important role in determining what kind of disability coverage you can buy and how much your premium will be. The underwriter will consider your job duties as well as your title. Statistically, certain occupations pose less risk to the insurance company. For instance, if you are an architect, an engineer, or a CPA, you are less likely to file a disability claim than if you are a maintenance worker, hotel manager, or mechanic. Insurance companies group occupations together and assign them a rating class based on how hazardous the occupation is, the income level of individuals working in the occupation, and claims experience.
Income
The amount of money you earn affects the type of coverage you can buy, what your monthly disability benefit will be, and how high your premium will be. High-income professionals generally fall into higher ratings classes. If you have relatively high earnings, you may be able to buy a policy that has a more liberal definition of disability and more comprehensive coverage. In addition, the benefit amount you may purchase is based on your gross earned income before taxes. You will usually be asked to present proof of income, most likely an income tax form or wage and earnings statement.
Each insurance company has a table that is used to determine how much monthly benefit you can receive based on your earnings. In general, the insurance company will try to replace 50 to 70 percent of your pretax earnings. This percentage may be higher if your income is low or less if your income is high.
Medical history
How healthy you are now and how healthy you’ve been in the past is the single most important factor used to determine your eligibility for disability insurance coverage. The application will list a series of questions designed to expose current and past health conditions. If you’ve had health problems, you’ll need to supply details such as the name and address of your physician, duration of treatment, and dates of illness or injury. You’ll probably be asked to take a paramedical examination, including a blood test and a urinalysis. Some people must undergo a full physical examination. You may also be asked questions about your family’s medical history to determine whether you are at high risk for developing certain medical conditions, such as diabetes, heart disease, cancer, or Parkinson’s disease (among others).
Personal habits and lifestyle
You’ll also be asked a series of questions designed to determine whether your lifestyle increases your chances of suffering a disability. For instance, you may be asked if you’ve ever been declined for other disability insurance, if you’re a pilot, if you travel out of the country, or if you’ve ever been arrested. Be truthful. The insurance company has access to a lot more information than you may suspect. It can get information from databases and, with your permission, from credit bureaus and other organizations. It can even conduct interviews with your friends and family.
If your lifestyle seems risky, you may be asked to fill out one or more supplemental questionnaires designed to shed more light on the actual risk you pose. Again, even less-than-perfect answers to these questions may not affect your ability to buy disability insurance. It’s just one point that the insurance company considers.
Other disability coverage
Insurance companies want you to get better and return to work rather than live off your disability income forever. To give you incentive, they limit the amount of coverage you can buy, based on the amount of coverage you already have. They take into consideration what other private disability policies you own, what group insurance disability benefits you will be entitled to, and whether you’re eligible for Social Security or other governmental disability coverage. Your new policy will be designed to supplement, not add to, the benefits of any other coverage you have.
The underwriter’s job is to evaluate and classify risk
Although underwriting practices vary, here’s how the underwriting process usually works: After your application is submitted (through DisabilityInsuranceExperts.com), the carrier underwriter reviews it. You may be issued coverage right away, or you may have to submit additional information or reports to help the underwriter determine whether you are an acceptable risk. You will be assigned one of three risk categories: the preferred risk, the standard risk, or the special risk (also known as substandard risk). The category to which you are assigned determines what kind of coverage you can buy and how much the coverage will cost.
The Disability Risk: Can it happen to you?
Many people don’t worry about becoming sick or injured, or being unable to afford their lifestyle if they were unable to work. However, we must all consider this possibility, because a disability has become a common – and elevating – issue, and individual savings rates are at all-time lows.
Consider the following facts:
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There is 3 in 10 chance of a 20-year old worker suffering a disability prior to reaching retirement age. (www.socialsecurity.gov/dibplan)
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Every three seconds a disabling injury occurs in a public setting and every four seconds in the home. (National Safety Council, “Injury Facts,” 2007 Edition)
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Since 2000 the number of workers who have become disabled has risen by 35% accordingtotheSocialSecurityAdministration.(www.disabilitycanhappen.org/news/survey_summary.asp)
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In the United States personal savings rates averaged only 0.5% in 2007, with a 2.0% average over seven years. (U.S. Bureau of Economic Analysis, 2007)
What does all of this mean to real people and their lives?
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Approximately two-thirds of families in America live from paycheck to paycheck on a monthly basis (Parade Magazine, “Is the Dream Still Possible?” April 23, 2006)
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Over 70% of working Americans have not saved enough money to meet short-term emergencies. (National Investment Watch Survey, A.G. Edwards Inc., 2004)
Loss of income due to a disability brought on by an illness or injury can happen to anybody. What would your answers be to these essential questions?
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Would I be able to afford my lifestyle without an income?
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What amount of my current income pays to cover living expenses every month – mortgage, utilities, food, car payments and gas, and home repairs – and what would you do if you had no income to pay these expenses?
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How long could I live off of my savings?
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What changes would my family or I have to make to our lifestyle if I lost my income?
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Would I be able to fund future plans – college funding, retirement, travel?
