Features of a good disability income insurance

Between the ages of 30 and 65, you are two to three times more likely to become disabled than you are to die.

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Yet, you probably have at least a Term life insurance, and if you are employed, you probably have group health insurance. The health insurance will pay your medical bills, but it will not pay your mortgage or put food on the table for your family.

An important planning piece for young families (you can't get it when you are over 65) is individual disability insurance, not to be confused with social security disability.

Like many other insurance plans, disability insurance coverage has "fine print" and legal terminology you need to understand. If at all possible, work with a professional agent to make sure you have what you need. In general, the following points and features will help you identify a good policy.

Language and features

Any occupation: A definition of disability under which a person must be unable to engage in ANY meaningful work in order to start receiving benefits. This is the definition used by Social Security in order for a person to start receiving SSI. (See Own Occupation)

Benefit percentage: Your disability benefit–or monthly check–will be a percentage of your average pay, often over the past three years. You can choose from 50 to 70%, and some companies even allow you up to 80% if you can pay the premium.

Benefit period: You can choose a policy that lasts only a few years, or you can choose "unlimited," meaning your disability income will last the rest of your life, or at least until you are eligible for social security.

Conversion privileges: The right to convert your coverage to some other form of health insurance. Group Long Term Disability may be convertible to Individual Disability Insurance if you have been employed long enough. With several private companies, Disability Insurance can be converted to Long Term Care Insurance at age 65 without medical underwriting.

Elimination Period: The elimination period is like a time deductible. It may be from 30 days to 6 months, depending on how much premium you want to pay. A longer elimination period will give you a lower premium. Benefit is not paid out until you have satisfied the elimination period. Some policies, however, will return the premium paid during the elimination period.

Exclusions: Most companies have exclusions for disability as a result of committing a crime, or for a disability incurred during acts of war. Mental or nervous system disorder is also sometimes excluded altogether although some companies may allow you a two year benefit period. Others have no exclusion at all for mental or nervous disorders.

Guaranteed renewability, also covered under Recurring disability: The right to keep your policy no matter how many times you have to use it.

Indexing: Indexing could be thought of as inflation protection. Usually a person’s income goes up over time. The indexing allows you to receive a benefit based on your years of income immediately preceding the onset of disability rather than on the income you may have had when you purchased the policy.

Optional riders: Several riders are available such as a cost of living increase rider, future increase riders, and social security replacement riders.

Own occupation: A definition used to determine level of disability. With “own occupation,” as the definition, you can begin to receive benefits from your policy if you are unable to perform the duties of your current job.

Partial disability: A policy allowing for partial disability will continue to pay benefits even if you are able to return to work part-time. Most private policies allow for some benefit for partial disability.

Pre-existing condition: A condition that existed prior to the purchase of the policy. Most companies will not pay for a disabling condition that is the result of a pre-existing condition. Some, however, simply have a pre-existence time period, such as two years. For example, if you had such a condition and became disabled within two years of taking the policy, the company probably would not pay.

Premium waiver: Most companies waive your premium once you have been collecting your benefit for 60 to 90 days. Some will also return the premium you paid during the waiting period.

Presumptive disability: Refers to disabilities that occur suddenly, such as that which might result from a car accident. If the disability is irrecoverable and permanent, involving the loss of limbs, sight, hearing or speech, the presumptive clause in the policy will allow you to collect from the first day, thus avoiding the waiting period.

Residual disability insurance: A provision that allows you to continue to collect at reduced benefit once you get back to work. It assumes that you will not be able to resume all of your duties and get your income back up to what it was immediately. Thus you are able to collect some disability even when you begin to earn a wage.

Return of premium: If you never use your policy, some companies will give your premium back over time. This involves the purchase of a rider.

Survivor benefit: This is a lump sum that is paid to a beneficiary upon the death of the insured. It is available as a rider and can be either a return of premium (for someone who never had to used the benefit) or a lump sum pay-out if a person dies while receiving benefits. Companies handle the survivor benefit differently.

Waiting period: also called elimination period. Nearly all companies require you to be unemployed for a certain amount of time before you can collect disability payments. The longer the waiting period, the lower the premium.

As with any insurance, don't jump at the cheapest, and don't try to purchase it without talking to a trained professional. To get a quote designed to meet your needs, go here »