You’re likely to make more than $2 million in your working years. This is something that’s worth protecting, and disability insurance is the best way to do so. Here are 10 facts about this important coverage.
My opinion is that disability income insurance is one of the most overlooked insurances. Although everyone thinks they need to purchase life insurance, almost nobody buys disability insurance. According to the Social Security Administration for 20-year olds, more than 1 in 4 will be disabled before reaching retirement age.
You should always purchase individual coverage if you own a business. Next, consider adding a group plan to your own and for your employees. In the amount you will receive, individual policies take into account whether you have group coverage. Individual is not considered by group, so it’s important to buy individual insurance first.
1. Non-Cancellable vs. Guaranteed Renewable
A non-cancellable, guaranteed renewable policy will not allow for any changes in the premium or policy benefits beyond age 65. This applies regardless of income, working status, or health status. With a guaranteed renewal policy, however, the insurer can’t change the premium or benefit for an individual. However, it can change the premium for a group of policyholders, according to state, underwriting class, or policy year.
2. Definition of disability
Insurance companies can categorize their coverage in several ways: Own Occupation, Own Occupation but Not Working, and Any Occupation.
Own Occupation policies cover the insured if they become unable to perform substantial and material duties in their occupation.
Your Own Occupation, but not working, means that you cannot work in the specific occupation you choose and can’t leave it. They would reduce or stop paying you if you did go to work.
Occupation policies do not provide complete disability benefits for those who are unable to work.
3. Length of the Benefit
You have the option to choose between five years or 65, and possibly even longer.
4. Waiting Period
You will need to wait or eliminate the period for disability income insurance policies before you can receive benefits payments. A waiting period of 90 days is typical. Any longer might result in a loss of premium savings.
5. Cost of Living Adjustment
For younger workers, this is an essential feature of policies. Inflation affects how your disability benefit will increase over time. Once you file a claim, this rider is activated.
6. Future Purchase Option/Future Increase Option
This allows you to purchase more insurance later on, when your income is likely to be higher, without needing to go through medical subwriting again.
7. Increase Rider (AIR).
To keep up with inflation, this rider will increase the monthly benefit during the first few years. This optional rider becomes effective when the policy is issued.
8. Residual Benefits
If the insured experiences a loss of income greater than 20%, this rider will pay a portion of their monthly earnings. This means that I might be able go back to work but not as often as before.
9. Catastrophic Rider (CAT).
Additional benefit paid if the insured receives total disability benefits, is unable or unable to perform two activities of daily life (ADLs), is severely cognitive impaired, or is presumed to be totally disabled.
10. Social Insurance Supplement Rider (SIS).
As long as the insured does not receive benefits from Social Security Disability Insurance (SSDI), the benefit will be paid. The SIS rider benefit for SSDI benefits is decreased dollar-for-dollar if the insured has SSDI benefits. This can be used to lower the cost of disability insurance policies.
There are many things to take into consideration when selecting a disability income policy. Remember that although disability coverage can replace 60% of your income (though it may not be tax-free), you should not rely solely on it.