Disability Income Replacement Insurance

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What to Look For In A Disability Insurance Policy

• The Definition of Disability: The definition of disability will vary depending on the policy. Some provide an "own occupation" definition for either the life of the policy or a specified period of time. Others will take into account past earnings and whether a policy holder is able to return to work in another occupation while yet others will also take into account education, training and experience in determining a policyholders ability to return to work
• Partial or Residual Benefits: Partial or residual disability benefits may be paid in some policies when the impairment allows the insured to perform only a portion of his pre-disability duties. This provision may also pay benefits in the case where the disability reduces the insured's income by a specified amount, from pre-disability levels.
• Cost of Living Adjustment: Is there a cost of living adjustment (COLA) which would increase benefit payments after a disability occurs?
• Cancelability and Renewability: Noncancelable means that as long as the premiums are paid, they cannot be increased and coverage cannot be reduced or restricted. Guaranteed renewable allows the insurance company to increase the premiums, by class, but coverage cannot be canceled or restricted.
• Waiting and Elimination Period: Is the waiting or elimination period proper for your circumstances? Commonly available periods include 90 day, 6 month, and one year. The longer the waiting period one selects the lower the premium payments will be. A person's needs, available cash reserves, and income sources should be the deciding factors in determining the elimination/waiting period.
• Benefit Period: What benefit period should be selected? A long-term medical disability can be financially devastating. One should select a long-term benefit period where possible. Most companies offer coverage to age 65 or age 67; some offer lifetime benefits.

  Caution: Highly compensated employees should be aware of payment caps in many group long-term disability policies. While some programs will provide disability income of 60% or 66% of salary, many have a relatively low dollar limitation, such as $3,000 per month.

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