September 28, 2012


Choosing the Best Disability Insurance Policy for You

A sports injury, a car accident, a problem pregnancy…no one knows when—or how—disability will strike. That unpredictability is why the best disability insurance policy is the one that will pay the most benefits in the greatest number of disability scenarios.

But how do you know which disability policy is the best for you?  Given how much is riding on your decision—your ability to maintain your family’s current (and future) lifestyle—it is imperative that you know what to look for before you purchase disability coverage.

 However, because disability coverage involves many more factors than life insurance, sorting through various disability quotes and trying to compare the benefits from each company can be overwhelming.  Obviously, it’s best to select an insurance agent or broker who works with several companies who can work with you to find the best policy for you.

With disability insurance, there are a number of criteria that can help you evaluate a policy.  Due to the limitations of this space, we will only focus on what we consider the top three criteria.  However, it’s important to consider how a policy performs in its entirety to determine if the coverage it can provide is sufficient for your needs should you suffer a disability.

Three key criteria to use in evaluating a policy:

The Renewability Provision is one of the key features of any individual disability policy.  In general, a disability insurance policy may be guaranteed renewable only or both non-cancellable and guaranteed renewable. If a policy is guaranteed renewable only, the insurance company agrees to keep renewing your contract as long as you continue to pay the premiums on a timely basis. While the insurer cannot change the provisions of the policy, it can increase premiums by age, state, occupation class and other categories with prior notification.

When the term non-cancellable is added to guaranteed renewable, the insurance company cannot change any policy provisions and it cannot increase the premiums, as long as premiums are paid on a timely basis and it cannot cancel the coverage (provided all questions in the application were answered truthfully).

The policy’s definition of total disability. There are basically two definitions available in good quality disability policies for professionals – Own Occupation and Modified Own-Occupation.

Own-Occupation pays benefits if sickness or injury prevents you from performing the material and substantial duties of your occupation.  In other words, you may be considered totally disabled – and receive benefits accordingly – as long as you are not able to work in the occupation in which you were engaged at the time you became disabled. This is true even if you are working in another capacity – even, for example, if you are earning a significant income teaching or writing.

Modified Own Occupation pays benefits if sickness or injury prevents you from performing the material and substantial duties of your occupation, provided you are not working in another occupation.  For example, if a surgeon were to lose the use of one of his/her hands but decided to work in a family practice setting, he/she would no longer qualify for disability benefits.

The policy’s definition of Partial or Residual Disability.  Disability isn’t always “total.” You may suffer a partial (or residual) disability that limits your ability to work and results in decreased income—or an initial total disability followed by an extended period of residual disability.

In such circumstances, most good policies will pay benefits proportionate to your income loss and, for the first six months’ benefit, at least 50% of the total disability benefit.  Beyond that, disability policies can vary significantly when it comes to residual disability benefits.  For example, most companies discontinue residual benefits when your income loss falls below 20%. As with all contracts, it pays to read and thoroughly understand the fine print, so you will know what to expect from the insurance company in all potential claims situations.

 With disability insurance, one size does not fit all. The best policies offer a variety of optional benefits to enhance your coverage and allow you to tailor it to your specific situation. For example, you may be able to add policy riders to keep your coverage in line with your increasing income, help your disability benefit keep pace with inflation and even help maintain your coverage if you become unemployed.  Work with a broker experienced with disability policies and customize the policy that best fits your needs.

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