Becoming disabled through an accident or illness usually causes a significant loss of income. Disability insurance provides a person who becomes disabled with income to cover ongoing living expenses that continue in spite of the disability. When you are deciding what disability insurance policy is right for you, there are many variables to consider. You should know and understand the basics of any policy you are considering before buying the policy.
Definition of Disability
This is extremely important as the definition or criteria for being considered disabled can vary greatly from policy to policy. For example, some policies pay benefits if you are unable to perform the duties of your customary and previous occupation while others will pay only if you are unable to engage in any type of gainful employment.
Some policies require that you be totally disabled before payments begin. Others will pay if there's only a partial disability. If you are able to work to some extent but your income is reduced because you cannot fulfill all of your job responsibilities, residual benefits can help to make up the difference in your income. A standard feature in some policies, a residual benefit allows partial payment based on your loss of income without prior total disability.
Size of Benefits
Not wanting to provide benefits so sizable that the amount payable would encourage workers to remain off work, most companies limit benefits to no more than 70 to 80 percent of monthly income. Lower-paid workers can expect to receive a greater percentage of their pre-disability incomes while higher-paid workers generally receive a lesser percentage.
When Payments Begin
Most policies allow you to decide when benefit payments are to begin after you become disabled. In essence, this waiting period serves as the policy deductible. You choose a waiting period at the time of application which can range anywhere from one day to six months or more after the onset of the disability. The longer the waiting period, the less expensive the coverage. Depending on how much money you have saved, and your other financial resources, you can reduce your premiums by electing to wait 90 days, 6 months, or even 12 months before you start to receive benefit payments.
Length of Coverage By choosing a benefit term, you determine how long your benefits are payable, such as for six months, one year, five years, to age 65, or for your lifetime. Electing shorter benefit periods will save premium dollars, but bear in mind that if you need this type of insurance at all, you probably need it most to cover a disability that permanently removes you from the work force. A lengthy disability threatens your financial security much more than a short-term disability.
Renewability
While selecting the level and duration of benefits is important, you should also inquire about the ability to renew or continue your policy. There are three general types of renewal provisions:
1) Non-cancelable policies give you the right to continue a policy by timely payment of premiums, and the insurance company cannot change the premiums and benefits shown in the policy.
2) Guaranteed renewable policies will be automatically renewed, with the same benefits, but the premium may be increased if it is changed for an entire class of policyholders.
3) Optionally renewable or conditionally renewable policies are extended at each anniversary or premium due date, but only if the insurance company decides to do so.
