Guardian Disability Insurance Brokerage

Disability Insurance 101

by Anthony Delvecchio

Most of us do not think about what would happen to us if we were to become sick or injured. We don’t think about the bills that would pile up, the stress that we would put on loved ones. The “it cant happen to me” mentality is in most of us. Unfortunately we can not see into the future and predict if we are going to be one of the ones who become disabled before we retire. Disability insurance is a product we all should own. This article is going to discuss disability insurance in its basic form.

What is disability insurance?

Disability insurance is a product purchased from insurance companies designed to replace your income if you were unable to earn an income because of an injury or illness. It is designed to replace a percentage, usually 60%, of your current income. Most policies have a specific period of time you must be out of work in order for your benefits to begin. This is known as the Elimination Period. Which leads me to:

When Do Benefits Start?

This all depends on which Elimination Period you have chosen. Most individual plans are priced so that the 90 Day elimination period makes the most sense. An Elimination period is the amount of time you have to be unable to work before you are eligible for benefits due to disability. Every long term disability policy has one and it is important to understand how long your EP is. Some policies require the elimination period to be consecutive. This means you must be out of work for 90 consecutive days to become eligible for benefits. If you are able to work again during those 90 days, you start all over again. Most polices however have an accumulation period. You still have to satisfy the 90 days but they do not have to be consecutive. The accumulation period on a good IDI policy is 180-210 days on a 90 day elimination period. This means you have 210 days to accumulate and satisfy the 90 days of your elimination period. Lets say you have an injury and you miss 20 days of work. You are able to go back to work after 20 days for a week or so but after that week your injury keeps you out again. The elimination period has already begun and this next days would count 20+. They do not have to be consecutive.

How long do I get paid for?

There are a few factors to consider. The length of the benefit period is going to say how long you will receive benefits while on a total disability claim. However, the definition of total disability in the policy can have a major outcome on how long you remain eligible for benefits. Insurance contracts define disability different. Some have an “any gainful occupation” definition of disability. This means you are eligible for benefits as long as you can not work in any occupation in which you are reasonably educated and trained to do. Other policies have a more comprehensive definition of disability in which they protect your “own-occupation”. This means if you are unable to work in “your occupation” at the time of claim, they would pay you benefits and allow you to work in another occupation without offsetting your benefits. This is a basic breakdown of two completely different policies and it is a bit more complicated but I want to keep this on a very basic level.

How much is disability insurance?

A typical individual disability insurance policy is going to cost roughly 1-3% of your income. The pricing is based on your age, sex, benefit amount, your occupation, and what state you live in. A good rule of thumb, the younger you are the cheaper the annual premium will be. In the end, whether you buy disability insurance at 25 and have a lower premium or 45 with a higher premium, you will pay close to the same amount of money in premium.

What is the underwriting process like?

You will have to submit an application. Most companies require you answer a list of medical questions on the application. They are yes and no questions that require details for any yes answers. You may have to provide blood and urine samples. These are usually done at your home at your convenience. You will also have to submit financial documentation to verify the amounts you are applying for. The process takes about 6-8 weeks. If you want the insurance in a month you should get the process going now.

What if I have disability insurance at work?

If you already have benefits at work most likely it is a group policy. Group policies are great to have, typically they are at no extra cost to you, but they do have limitations. The premiums are normally paid by the employer which means your benefit will be taxable. Most group policies have maximum benefit amounts. They may say 60% of your salary but a maximum benefit of $5,000. If you are making $100,000 that’s great. If you are making $150,000+, you are under insured. Most group policies have different definitions for disability than an individual policy. It is important you read and understand what your group coverage offers. In most cases an individual policy is still going to be needed if you want to offset some of the income not protected by a group policy.

This article is just a snap shot of what disability insurance is. Purchasing disability insurance is not a simple task. There are so many little details in a policy that can make a major difference in benefit and coverage. Unlike term life insurance or car insurance, searching for price only can lead to major gaps in coverage. Make sure once you have made the decision to purchase this important coverage you educate yourself and contact a specialist who understands the language and the contracts that are available to you. You do not want to be in a situation where you become disabled and you find out your policy is not what you thought it was. This is article is disability at it’s simplest form. Please make sure you contact an agent who knows what they are doing before you purchase this important coverage.