Disability insurance rates are dependent on many different components. The inexpensive policies available are typically the ones that pay out fewer benefits in fewer situations. These policies may actually cost you more because of benefits not paid due to restrictive terms and provisions. Before you make a decision on a policy, there are five primary questions that you need answers to.

Question 1: How much coverage may I qualify for? 

You can typically be approved for about 60% of your taxable earned income. Rates will be higher for policies that have larger monthly benefit amounts. The higher your income is, the lower that percentage is going to be. Somebody making $50,000 needs the full 60% to maintain their standard of living, somebody making $500,000 is not going to get very close to 60%.

Question 2: What will determine whether or not I’m disabled?

While there are several factors, one of the most important provisions of any policy is the definition of total disability. The definition of total disability varies from one policy to the next. Some policies pay benefits if you are unable to perform the duties of your own occupation even if you choose to find work doing something else while you are disabled from your regular occupation. 

These definitions are of the most comprehensive and are often referred to as true own-occupation disability insurance policies. These policies are the ones that will pay you more benefits in more situations than any other type of definition of total disability. 

Some other policies may pay benefits if you are unable to perform the duties of your own occupation and are not working in any other occupations. The most restrictive definition of total disability is the one that only pays benefits if you cannot work in any occupation for which you are reasonably qualified.

Question 3: How long will benefits be payable?

A policy’s benefit period refers to the maximum length of time your policy will pay benefits once you become eligible. A typical benefit period is to age 65, benefit periods of ages 67-70 are also available. Additionally, shorter benefit periods such as 10-years, 5-years, or 2-years are typically also available. Policies with a longer benefit period will have a higher cost. 

Question 4: Could my policy be changed, canceled, or my premium increased?

Disability insurance policies available on the market are typically either only Guaranteed Renewable or both Non-Cancellable and Guaranteed Renewable. Those that are only Guaranteed Renewable are the ones where premiums can be increased at a later time. Rates are typically cheaper for these types of policies but may actually cost more in the future due to premium hikes by the insurer. 

Policies that are both non-cancellable and guaranteed renewable are the ones where premiums may not be increased. Rates are locked in for the entire policy term. 

Question 5: Why is it important to consider an insurance company’s ratings?

A disability insurance policy is simply a promise to pay. But a promise is only as good as the company that can honor it. You may have another 10, 20, or 30 years until your retirement. 

Economic shifts occur routinely in vicious cycles; insurance companies may come and go during your working career. To ensure that the promise made to you will be upheld by your chosen insurance company, choose a company that is amongst the highest rated. Comdex ratings rank companies based on all of the major rating agencies. Instead of trying to understand the different scales, Comdex pulls it all together into a simple 1-100 rating.

You will not be making a bad decision if you choose a company that is rated 95 or higher with Comdex.

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.