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What You Should Know About Disability
Insurance
Income replacement plans are not always
easy to understand. When you talk to your agent or broker, here's tips on what
to ask about:
Guarantees
Does your plan guarantee the premium rates and/or the policy provisions? Some
individual income replacement plans are "non-cancelable" and the insurance
company cannot raise the premiums or restrict the benefits.
Exclusions
Always check your plan carefully or ask your broker about any circumstances
where your claim would NOT get paid. Generally speaking, you want to be sure
that you have 24 hour protection for all types of injuries and illnesses.
Definition of Disability
The most important thing to know about your disability insurance plan is what's
meant by "disability". There are many variations, and there may be different
definitions depending on how long your claim lasts.
An "own occupation" definition means
that you're considered disabled if you can't perform the duties of your usual
job. For instance, a dentist would be disabled if he or she broke an arm, but a
lawyer probably wouldn't be. "Own occupation" definitions are generally only
found in policies sold to professionals.
"Regular occupation" definitions are
commonly used, and are similar to the "own occupation" definition except that
your disability ends if you go back to work at a new occupation. However, as
long as you're not working because you can't do your regular job, you're
considered to be disabled. You'll often find income replacement plans that
provide a "regular occupation" definition but only for the first 2 or 5 years of
a disability. After that, the definition may switch to an "any occupation"
definition. An "any occupation" definition is stricter since you'll only be
considered disabled if you are unable to work at ANY job (generally for which
you are qualified).
How long will the benefit last?
You'll usually want a "benefit period" to age 65 just in case you are severely
disabled and can never return to work.
What about recurring
disabilities?
What happens if you have a chronic condition like colitis? Do you have to meet
the waiting period each time you're sick?
What if you can work part-time?
It's quite common that an illness or injury might make it impossible for you to
work full-time but doesn't completely incapacitate you. Does your income
replacement plan have a "partial" or "residual" benefit? A plan with "residual"
benefits pays you a disability benefit in proportion to how much your income
drops.
Portability
"Portability" means that you own your income replacement coverage wherever you
go. This is a downside of employer-provided disability plans because if you quit
or lose your job, you might be without any kind of income protection. And, you
might not be able to qualify for an individual income replacement plan -
insurance companies generally require that you be working steadily (sometimes
for a year) and be in good health.
Adjustments for Inflation
Does your coverage keep pace with any increases in your income? More
importantly, will your benefits grow over time if you're disabled? Say you had
to stop working at age 40 because of multiple sclerosis -- without any cost of
living adjustments you would have to live on a fixed income till age 65.
When will the benefit kick in?
After you're hurt or get sick, there will usually be an "elimination period" or
"waiting period" before the benefit starts. With a long waiting period, you'll
need some other source of income before your benefit begins.
Offsets or Reductions
Be sure you know whether any disability payments would be reduced (and by how
much) because of other sources of income or limits in your plan.
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