Things to Remember When Shopping for Disability Insurance

 

Definition of Disability  (The way the policy defines disability can make a difference in benefits.)

  • You're unable to perform the duties of your customary occupation.

  • You can engage in no gainful employment at all.

Extent of Disability  (When do you want benefits to kick in?)
  •  Total disability vs. partial disability.  Check out terms and timing of benefit payments.
Coverage  (Consider coverage that pays for accident AND illness.)
  •  As you get older, you're more likely to require coverage for illness.
Residual Benefits  (Is this benefit important to you?)
  • Residual payments make up the difference between full income and partial income.
Presumptive Disability  (Is this included in your coverage?)
  • Certain conditions, including loss of sight, speech, hearing, or use of limbs, entitle you to full
    benefits regardless of your ability to perform parts of your regular job.  
Amount of Benefits   (Make sure you get the benefit you need.)
  • The amount of stable, earned income at the time you purchase your policy determines monthly benefits. Typically, benefits are 70 to 80 percent of your monthly income.
When Payments Begin  (Make sure you stipulate when payments begin. The timing can reduce your premium payments.)
  • Immediately on becoming disabled
  • A length of time after the disability begins
Length of Coverage  (Electing shorter benefit periods can save premium dollars.)
  • Since disability benefits are designed to replace earned income, most people don't need benefits after the working years (typically age 65).
Inflation Factors  (You decide which option(s) suit you.)
  • A cost of living adjustment, generally 4 to 10 percent, is available for additional premium.
  • Most policies include a waiver of premium provision, which eliminates premiums after
    90 days of disability.
  • Some include option to buy additional coverage allowing you to bypass a medical examination
    or the need to submit further proof of insurability.
Renewal Options  (Make sure you know this.)
  • Non-cancelable - The insured has the right to continue by timely premium payment.  The insurer cannot change premiums/benefits of the policy.
  • Guaranteed renewable  - The policy automatically renews with the same benefits. The premium can be changed for an entire class of policyholders.
  • Optionally renewable - The policy is extended at each anniversary or premium date at the option of the insurer.
Taxes
  • Payments under disability policy are not subject to income tax.
  • Exception: if premiums were employer paid, some/all of benefits may be taxed.

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