30 Apr Buying Disability Insurance

What’s the Best Way to Buy Disability Insurance?

Disability insurance policies do not insure disabilities or illnesses. However, what it does protect is your wages. That is why many industry professionals refer to it as disability income insurance. Working and earning money is most definitely your most valued resource. 

When a major accident or disease prevents you from living, your income and lifestyle are jeopardized. Unfortunately, the risk is greater than most people realize. According to experts, one of every four employees will become injured during their working years. 

In addition, one in every eight people will suffer from a long-term injury that lasts longer than five years. And, although most people equate disabilities with injuries sustained in collisions, the majority of disabilities are caused by sickness. In reality, diseases such as cancer, heart disease, and arthritis cause 90 percent of long-term disabilities. 

The right insurance is an effective deterrent to disruptions to your way of life. However, securing a disability policy can be a complicated task. After all, this isn’t something you do every day, and there’s a lot to consider.

Different Forms of Disability Coverage and How They Operate 

Short-term and long-term disability benefits are the two most common forms. Both have a benefit that substitutes a portion of your salary, varying from 50% to 80%. That money may be used for living costs, debt repayment, or even savings. Despite these correlations, the two types of policies are purchased individually and function somewhat differently. Primarily due to the fact that short-term needs vary from long-term needs.

Short-Term Disability Insurance 

The majority of injuries are temporary, leaving a person out of work for less than a year. Short-term disability insurance (STDI) is intended to replace wages during these brief phases of recovery from injuries or disease. STDIs are usually obtained in the workplace as part of a collective insurance plan. In general, they are offered as either a mandatory (employer-paid) or voluntary (employee-paid) insurance benefit. These programs often have a payout over three to six months. They also provide recovery features to assist workers with returning to work as quickly as possible.

Long-Term Disability Insurance 

Other kinds of disabilities are more serious, last longer, and may also be lifelong. Long term disability insurance (LTD) is tailored for these cases, with a benefit period that can extend for several years. Some even provide coverage after retirement if necessary. Although LTD can be obtained by an employer, it is most commonly acquired as an individual program. Individual policies are most common for business owners, doctors, and higher-income professionals. People in these occupations are frequently worried with what would happen to their family’s lifestyle if they were unable to practice their trade.

Individual LTD laws, as a result, generally have a more comprehensive description of what qualifies as a covered disability. These differences determine which type of disability coverage someone should get – either own-occupation disability or any-occupation disability. 

Any-occupation plans only provide a benefit if you are unable to perform any type of job. Even if it is a routine task entirely unrelated to your career. When you are unable to practice your career or specialization, your own-occupation insurance will pay you a benefit. There are some carriers who provide alternative add-on options or features in order to offer policyholders more flexibility in their insurance.

Disability Insurance Policy Features

A disability insurance policy is a legally binding agreement with an insurance provider to pay a set monthly benefit when you are disabled. Any disability contract specifies the following five points: 

• Premium: The amount you (or your employer) pay for coverage is referred to as the premium. 
• Benefit Amount: The monthly payment you get if you are unable to work. The benefit from an individual LTD plan is normally not taxed (unless paid with pre-tax dollars); however, the benefit from an employer offered disability policy – typically group STDIs – is taxed.
• Benefit period: The maximum amount of time that you will earn benefits. 
• Waiting period: Also known as an elimination period; it is the amount of time that you must wait after being disabled before you can begin collecting benefits. It is usually two weeks for STDI and varies for LTD, depending on what you want or what the insurer provides. 
• Definition of disability: Each disability policy defines what it means to be disabled in order to qualify for benefits. Aside from “own-occupation” and “any-occupation,” various levels of impairment (e.g., “partial disability”) can also be specified, which may qualify you for a percentage of your overall benefit amount.

Features and Policy Choices for Tailoring a Disability Policy to Your Needs 

Many of the features within a disability policy will differ between policies and providers. So, be sure to ask detailed questions to clarify what benefit you will receive, when you will receive it, and under what conditions. If you get an STDI policy through work, you won’t have many options for customizing your coverage. However, double check to see if a disability policy is portable, although most are not. A portable policy means you can take the policy with you if you leave your employer. Hence, as long as you pay the premiums, your coverage will continue. 

A long-term disability policy bought as an individual is a completely different story. Insurance providers will generally offer one or more base contracts with a selection of features and conditions that are consistent. Your contract will be personalized to the benefit amount, benefit period, and description of disability that you choose. In addition to the riders – which are optional protections – that you select to further personalize your coverage. You should think about the following provisions, characteristics, and riders:

Non-cancellable provision: Which states that the insurer is not allowed to increase the premiums as long as you continue to pay them. It is customarily combined with a clause for assured renewability. 

Guaranteed renewability: A condition that states that the insurance provider will not cancel the policy or alter the terms and features as long as you continue to pay your premiums. However, insurers can increase them – unless the policy is non-cancelable.

Premium waiver: This ensures that you will not have to pay any premiums when you are injured and receiving benefits. Guardian goes a step further by including a package that waives premiums for an additional six months after you recover and benefits stop.

Partial disability insurance rider, basic or enhanced: These choices cover you by paying a partial benefit if you suffer an accident or disease that affects your ability to function but does not result in complete disability. 

COLA (cost-of-living adjustment): A rider that guarantees that the payout will be increased by the insurance provider to account for inflation. 

Student loan insurance rider: This optional benefit offers additional funds to pay off student loans during the benefit period. It is especially useful for early-career professionals like doctors and lawyers who have spent a lot of money on their education.

Future purchase option: This helps you to expand your coverage in the future when your income grows without needing to undergo a medical test or offer evidence of medical insurability. 

Lump-sum disability payout: Provides a “bonus” benefit at age 60 equal to 35% of all total disability and partial disability compensation paid before that age to compensate for missed savings during a time of disability earlier in your career. This rider can only be obtained by Guardian. 

Retirement protection: insurance rider that covers your retirement benefits by replacing the contributions you would have made to your defined benefit account if you were completely disabled.

Catastrophic disability benefits: Offers additional funds – up to 100 percent income replacement – if you are unable to perform two or more tasks of daily life, are cognitively impaired, or are irreversibly disabled as a result of an accident or illness. 

The majority of the features mentioned above are available in some form, from a number of disability providers. Other options to personalize the insurance policy would be available from major carriers as well.

How to Choose the Right Disability Insurance for You 

Begin by seeing if you can get disability coverage as part of your employee benefits package (especially for STDIs). You may benefit from lower group coverage rates, and your employer can pay a portion of your premiums. They may even cover 100 percent of your STDI premiums. If your employer does have LTD, the features and benefits may be restricted in comparison to a standalone policy.

If you’ve determined how much compensation (if any) is provided by your employer, it’s time to get an online quote and then meet with a financial advisor or broker to get the detailed disability policy you need. Be sure the specialist is knowledgeable about the nuances of purchasing an individual disability policy – if you don’t know one, a financial advisor will assist you. Inform your financial advisor as much as possible about your financial condition and any concerns you may have so they can begin researching the policies and features that best suit your needs.

Discuss various coverage scenarios: What happens if you get sick and are unable to work for a few years? What if you have a physical disability that makes you less productive? The more you investigate, the more you’ll understand the importance of an own-occupation description of disability. Also, ask your financial advisor to search for a policy that is non-cancelable and assured renewability, so that your terms and premiums remain stable. 

Explore Providers with Outstanding Financial Strength and Longevity Ratings

Make certain that the companies from which your counselor obtains quotes are financially stable: You want to know that the insurance provider will be around in years, if not decades, to pay a benefit. Financial strength ratings (FSRs) can be obtained from reputable, unbiased sources such as A.M. Best, Fitch Ratings, Moody’s, and Standard and Poor’s.

What About Price?

A comprehensive individual disability care package would cost you between 1% and 3% of your annual salary. The actual premiums you pay will be determined by the benefit amount, time, and the plan requirements and features listed above. There will also be an underwriting process in which the insurer will evaluate your age, lifestyle, and fitness. In essence, you will be required to take a medical examination.

Don’t put it off any longer – the younger and healthier you are, the lower the disability premiums will be. There are other ways to save expenses, such as opting for a longer waiting time. You can also look at level and graded premium choices to make payment more convenient. 

Do your best to not get overwhelmed. It might feel like there’s a lot to think about, but by working together, you and your financial advisor will be able to create the best disability insurance plan. Ideally, you will find an insurance policy that is specifically tailored to your financial and wellness security needs.

What to Consider When Choosing Disability Insurance?

You should choose the insurance plan that best offers the income security you need in a way that is customized to your specific requirements. It’s a good idea to start by looking into what’s available through your employer, particularly for short-term coverage, and then speak with a broker or financial professional to get the tailored long-term insurance you need with an individual policy.

Examine the compensation sum and period, the concept of disability (own-occupation is preferable), the company’s financial strength scores, insurance requirements, the ability to add benefits, optional features such as a cost-of-living adjustment rider (COLA), and whether or not the company will change the policy terms and/or premiums.

In Summary

Disability insurance, whether long-term or short-term, is a vital part of the financial security. It guarantees that you will have money even though you are unable to function due to sickness or injury. It’s preferable to workers’ compensation because it ensures you can pay your bills and stay on track with your financial ambitions. 

If you do not have a disability insurance policy, applying for one is a fairly simple process. And you can make it much simpler by understanding what to expect and making sure you have all of the necessary details on hand. As a result, when you begin shopping, it will be a smooth process, and you will be able to get covered quickly.